UNITED STATES
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Table of Contents
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited interim condensed consolidated financial statements of our company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars, unless otherwise noted.
High Wire Networks, Inc.
1
High Wire Networks, Inc.
Condensed consolidated balance sheets
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowances of $ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Property and equipment, net of accumulated depreciation of $ | ||||||||
| Goodwill | ||||||||
| Intangible assets, net of accumulated amortization of $ | ||||||||
| Operating lease right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Contract liabilities | ||||||||
| Current portion of loans payable to related parties, net of debt discount of $ | ||||||||
| Current portion of loans payable, net of debt discount of $ | ||||||||
| Current portion of convertible debentures, net of debt discount of $ | ||||||||
| Factor financing | ||||||||
| Warrant liabilities | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Loans payable to related parties, net of current portion, net of debt discount of $ | ||||||||
| Loans payable, net of current portion, net of debt discount of $ | - | |||||||
| Convertible debentures, net of current portion, net of debt discount of $ | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 15) | ||||||||
| Series B preferred stock; $ | ||||||||
| Total mezzanine equity | ||||||||
| Stockholders’ deficit: | ||||||||
| Common stock; $ | ||||||||
| Series D preferred stock; $ | ||||||||
| Series E preferred stock; $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ||||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)
2
High Wire Networks, Inc.
Condensed consolidated statements of operations
(Unaudited)
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discounts | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Warrant expense | ( | ) | ( | ) | ||||||||||||
| (Loss) gain on change in fair value of warrant liabilities | ( | ) | ||||||||||||||
| Gain on settlement of debt | ||||||||||||||||
| Exchange loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on extinguishment of warrant liabilities | ||||||||||||||||
| Penalty fee | ( | ) | ||||||||||||||
| Liquidated damages related to escrow shares | ( | ) | - | ( | ) | |||||||||||
| Gain on change in fair value of derivative liabilities | ||||||||||||||||
| Gain on extinguishment of derivatives | ||||||||||||||||
| Other income | - | |||||||||||||||
| Total other (expense) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss from continuing operations before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) from discontinued operations, net of tax | ( | ) | ||||||||||||||
| Net income (loss) attributable to High Wire Networks, Inc. common shareholders | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Income (loss) per share attributable to High Wire Networks, Inc. common shareholders, basic: | ||||||||||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) from discontinued operations, net of taxes | $ | $ | $ | ( | ) | |||||||||||
| Net income (loss) per share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Income (loss) per share attributable to High Wire Networks, Inc. common shareholders, diluted: | ||||||||||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) from discontinued operations, net of taxes | $ | $ | $ | ( | ) | |||||||||||
| Net income (loss) per share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)
3
High Wire Networks, Inc.
Condensed consolidated statements of stockholder’s deficit
(Unaudited)
| For the six months ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||
| Common stock | Series D preferred stock | Series E preferred stock | Additional paid-in | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | $ | Shares | $ | Shares | $ | capital | deficit | Total | ||||||||||||||||||||||||||||
| Balances, January 1, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock and warrants upon issuance of debt | - | - | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||
| Net Loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Ending balance, March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Issuance of warrants | - | - | - | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||
| Net income for the period | - | - | - | |||||||||||||||||||||||||||||||||
| Ending balance, June 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| For the six months ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Common stock | Series D preferred stock | Series E preferred stock | Additional paid-in | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | $ | Shares | $ | Shares | $ | capital | deficit | Total | ||||||||||||||||||||||||||||
| Balances, January 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock upon conversion of Series A preferred stock | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to PIPE transaction | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of Series D preferred stock | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of common stock to third-party vendors | - | - | ||||||||||||||||||||||||||||||||||
| Reclassification of Series D and E preferred stock to permanent equity | - | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||
| Net income for the period | - | - | - | |||||||||||||||||||||||||||||||||
| Ending balance, March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Issuance of common stock pursuant to PIPE transaction | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of Series D preferred stock | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of Series E preferred stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Cancelation of Series E preferred stock shares | - | - | ( | ) | ||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||
| Liquidated damages related to escrow shares | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Ending balance, June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)
4
High Wire Networks, Inc.
Condensed consolidated statements of cash flows
(Unaudited)
| For the six months ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: | ||||||||
| Amortization of discounts on convertible debentures and loans payable | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Stock-based compensation related to stock options | ||||||||
| Gain on change in fair value of warrant liabilities | ( | ) | ||||||
| Warrant expense | ||||||||
| Penalty fee | ||||||||
| Gain on settlement of debt | ( | ) | ||||||
| Gain on extinguishment of warrant liabilities | ( | ) | ||||||
| Gain on change in fair value of derivative liabilities | ( | ) | ||||||
| Stock-based compensation related to third-party vendors | ||||||||
| Gain on extinguishment of derivatives | ( | ) | ||||||
| Liquidated damages related to escrow shares | ||||||||
| Loss on disposal of subsidiary | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Contract liabilities | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities of continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities of discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash received from sale of technology services business unit | ||||||||
| Purchase of fixed assets | ( | ) | ||||||
| Cash received in connection with disposal of JTM | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Repayments of loans payable to related parties | ( | ) | ||||||
| Proceeds from loans payable | ||||||||
| Repayments of loans payable | ( | ) | ( | ) | ||||
| Proceeds from convertible debentures | ||||||||
| Repayments of convertible debentures | ( | ) | ||||||
| Proceeds from factor financing | ||||||||
| Repayments of factor financing | ( | ) | ( | ) | ||||
| Securities Purchase Agreement proceeds | ||||||||
| Net cash (used in) provided by financing activities of continuing operations | ( | ) | ||||||
| Net cash used in financing activities of discontinued operations | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net increase in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Original issue discounts on loans payable and convertible debentures | $ | $ | ||||||
| Issuance of common stock and warrants upon issuance of debt | $ | $ | ||||||
| Common stock issued for conversion of Series A preferred stock | $ | $ | ||||||
| Common stock issued for conversion of Series D preferred stock | $ | $ | ||||||
| Common stock issued for conversion of Series E preferred stock | $ | $ | ||||||
(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)
5
High Wire Networks, Inc.
Notes to the unaudited condensed consolidated financial statements
June 30, 2024
| 1. | Organization |
HWN,
Inc., (d/b/a High Wire Network Solutions, Inc.) (“HWN” or the “Company”) was incorporated in Delaware on
HWN
and JTM Electrical Contractors, Inc. (“JTM”), an Illinois Corporation, entered into an operating agreement through which
High Wire owned
On June 16, 2021, the Company completed a merger with Spectrum Global Solutions, Inc. On January 7, 2022, Spectrum Global Solutions, Inc. legally changed its name to High Wire Networks, Inc. (“High Wire” or, collectively with HWN, “the Company”). The merger was accounted for as a reverse merger. At the time of the reverse merger, High Wire’s subsidiaries included ADEX Corporation, ADEX Puerto Rico LLC, ADEX Canada, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”), AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”). For accounting purposes, HWN is the surviving entity.
High Wire was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, High Wire reincorporated in the province of British Columbia, Canada.
On November 4, 2021, the Company closed on its acquisition of Secure Voice Corp (“SVC”). The closing of the acquisition was facilitated by a senior secured promissory note.
On
February 15, 2022, HWN sold its
On March 6, 2023, HWN divested the ADEX Entities. The divestiture of the ADEX Entities qualified for discontinued operations treatment (refer to Note 18, Discontinued Operations, for additional detail).
On July 31, 2023, the Company paused the operations of its AWS PR subsidiary and sold off certain assets.
On
August 4, 2023, the Company formed a new entity – incorporated as Overwatch Cyberlab, Inc. (“OCL”) – which is
On November 3, 2023, the Company paused the operations of its Tropical subsidiary.
On June 27, 2024, HWN entered into an asset purchase agreement with INNO4 LLC (the “Buyer”) pursuant to which the Buyer agreed to purchase certain assets of HWN related to the Company’s technology services business unit (refer to Note 3, Recent Subsidiary Activity, for additional detail). The assets related to the technology services business unit qualified for discontinued operations treatment. Additionally, the asset purchase agreement includes a non-compete which precludes the Company from operating businesses similar to that of AWS PR and Tropical. As a result, both subsidiaries also now qualify for discontinued operations treatment. (refer to Note 18, Discontinued Operations, for additional detail).
The Company’s SVC subsidiary is a wholesale network services provider with network footprint and licenses in the Northeast and Southeast United States as well as Texas. This network carries VoIP and other traffic for other service providers.
6
| 2. | Significant Accounting Policies |
Condensed Financial Statements
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position and the results of its operations and its cash flows for the periods shown.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be expected for the full year.
Basis of Presentation/Principles of Consolidation
These unaudited condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These unaudited condensed consolidated financial statements include the accounts of the Company as well as High Wire and its subsidiaries, SVC and OCL. All subsidiaries are wholly-owned.
All inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do
not bear interest. The Company records unbilled receivables for services performed but not billed. Management reviews a customer’s
credit history before extending credit. The Company maintains an allowance for doubtful accounts for estimated losses. Estimates of uncollectible
amounts are reviewed each period, and changes are recorded in the period in which they become known. Management analyzes the collectability
of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, and changes in
customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors
change, the estimate made by management may also change. The allowance for doubtful accounts at June 30, 2024 and December 31, 2023 was
$
7
Property and Equipment
Property
and equipment are stated at cost.
| Computers and office equipment | ||
| Vehicles | ||
| Leasehold improvements | ||
| Software | ||
| Machinery and equipment |
Goodwill
The Company has two reporting units, HWN and SVC, and tests its goodwill for impairment at least annually on December 31 and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.
The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were impairment charges during the three and six months ended June 30, 2024 and 2023.
In connection with the sale
of HWN’s technology services business unit discussed in Note 3, Recent Subsidiary Activity, the Company assigned $
Intangible Assets
At
June 30, 2024 and December 31, 2023, definite-lived intangible assets consisted of tradenames and customer relationships which are being
amortized over their estimated useful lives of
The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value. There were impairment charges during the three and six months ended June 30, 2024 and 2023.
The sale of HWN’s technology services business unit discussed
in Note 3, Recent Subsidiary Activity included all of HWN’s remaining intangible assets. The net book value at the time of the sale
of $
Long-lived Assets
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. There were impairment charges during the three and six months ended June 30, 2024 and 2023.
8
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company conducts business, and files federal and state income, franchise or net worth, tax returns in United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2020 to 2023. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of the U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.
The Company follows the guidance set forth within ASC 740, “Income Taxes” which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense.
Prior to 2021, the Company had elected to be treated as a Subchapter S Corporation for income tax purposes, and as such recognized no income tax liability or benefit.
Revenue Recognition
The Company recognizes revenue based on the five criteria for revenue recognition established under ASC 606, “Revenue from Contracts with Customers”: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.
Contract Types
The Company’s contracts fall under two main types: 1) fixed-price and 2) time-and-materials. Fixed-price contracts are based on purchase order line items that are billed on individual invoices as the project progresses and milestones are reached. Time-and-materials contracts include employees working on an as needed basis at customer locations and materials costs incurred by those employees.
A significant portion of the Company’s revenues come from customers with whom the Company has a master service agreement (“MSA”). These MSA’s generally contain customer specific service requirements.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue service types, the performance obligation is satisfied at different times. For professional services revenue, the performance obligation is met when the work is performed. In certain cases, this may be each day or each week, depending on the customer. For construction services, the performance obligation is met when the work is completed and the customer has approved the work.
9
Revenue Service Types
The following is a description of the Company’s revenue service types:
| ● | Managed Services are services provided to the clients where the Company monitors, maintains, handles break/fix issues and protects customer networks. The Managed Services Segment encompasses all of the Company’s recurring revenue businesses including Overwatch Managed Security, all network managed services, all managed services performed under a Statement of Work (SoW), and the Company’s SVC revenue. |
Disaggregation of Revenues
The Company disaggregates its revenue by operating segment (refer to Note 16, Segment Disclosures, for additional information).
Contract Assets and Liabilities
Contract assets would include costs and services incurred on contracts with open performance obligations. These amounts would be included in contract assets on the unaudited condensed consolidated balance sheets. At June 30, 2024 and December 31, 2023, the Company did not have any contract assets.
Contract liabilities include payment received for incomplete performance
obligations and are included in contract liabilities on the unaudited condensed consolidated balance sheets. At June 30, 2024 and December
31, 2023, contract liabilities totaled $
Cost of Revenues
Cost of revenues includes all direct costs of providing services under the Company’s contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment, direct materials, insurance claims and other direct costs.
Research and Development Costs
Research and development costs are expensed as incurred.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the grant date fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718, at either the grant date fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in Accounting Standards Update (“ASU”) 2018-07. In accordance with ASU 2016-09, the Company accounts for forfeitures as they occur.
The Company uses certain pricing models to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period, which is generally the vesting period.
10
Income (Loss) per Share
The Company computes income (loss) per share in accordance with ASC
260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share (“EPS”)
on the face of the income statement. Basic EPS is computed by dividing the income (loss) available to common shareholders (numerator)
by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method.
In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from
the conversion of convertible debentures or preferred stock and the exercise of stock options or warrants. Diluted EPS excludes dilutive
potential shares if their effect is anti-dilutive. As of June 30, 2024 and December 31, 2023, respectively, the Company had
Leases
ASC 842, “Leases” requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Certain of the Company’s lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.
The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months as of January 1, 2019. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, unamortized lease incentives provided by lessors, and restructuring liabilities, Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur. The Company has elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities.
Going Concern Assessment
Management assesses going concern uncertainty in the Company’s unaudited condensed consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the unaudited condensed consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
The Company generated operating losses in the three and six months
ended June 30, 2024 and 2023, and High Wire has historically generated operating losses since its inception and has relied on cash on
hand, sales of securities, external bank lines of credit, and issuance of third-party and related party debt to support cash flow from
operations. As of and for the six months ended June 30, 2024, the Company had an operating loss of $
11
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.
Management believes that based on relevant conditions and events that are known and reasonably knowable, its forecasts of operations for one year from the date of the filing of the unaudited condensed consolidated financial statements in the Company’s Quarterly Report on Form 10-Q indicate improved operations and the Company’s ability to continue operations as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.
Recent Accounting Pronouncements
In November 2023, the Financial Standards Accounting Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company’s annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topics 740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.
Any other new accounting pronouncements recently issued, but not yet effective, have been reviewed and determined to be not applicable or were related to technical amendments or codification. As a result, the adoption of such new accounting pronouncements, when effective, is not expected to have a material effect on the Company’s financial position or results of operations.
Concentrations of Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains
its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided
on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk. As of June 30, 2024, HWN had a cash balance
in excess of provided insurance of $
The Company provides credit to customers on an uncollateralized basis
after evaluating client creditworthiness. For the six months ended June 30, 2024 and 2023, no customers accounted for 10% or more of consolidated
revenues or
12
The Company’s customers are all located within the domestic United States of America
Fair Value Measurements
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Warrant liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the six months ended June 30, 2024 and 2023. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
| Total fair value at June 30, 2024 | Quoted prices in active markets (Level 1) | Quoted prices in active markets (Level 2) | Quoted prices in active markets (Level 3) | |||||||||||||
| Description: | ||||||||||||||||
| Warrant liabilities (1) | $ | $ | $ | $ | ||||||||||||
| Total fair value at December 31, 2023 | Quoted prices in active markets (Level 1) | Quoted prices in active markets (Level 2) | Quoted prices in active markets (Level 3) | |||||||||||||
| Description: | ||||||||||||||||
| Warrant liabilities (1) | $ | $ | $ | $ | ||||||||||||
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Refer to Note 10, Warrant Liabilities, for additional information.
13
Warrant Liabilities
The Company accounts for its
liability-classified warrants in accordance with ASC 480, “Distinguishing Liabilities from Equity” and all warrant
liabilities are reflected as liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its warrant
liabilities. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and
able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices
for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model
fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying
first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models
could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.
The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three
levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of June 30, 2024 and December
31, 2023, respectively, the Company had warrant liabilities of $
Sequencing Policy
Under ASC 815-40-35, the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy.
| 3. | Recent Subsidiary Activity |
HWN Asset Purchase Agreement
On June 27, 2024, HWN entered
into an asset purchase agreement with INNO4 LLC pursuant to which INNO4 LLC agreed to purchase certain assets of HWN related to the Company’s
technology services business unit, for a base purchase price equal to $
Upon closing, (i) $
The Company considered whether or not this transaction would cause the sold assets to qualify for discontinued operations treatment. The Company determined that the sale of the assets qualifies for discontinued operations treatment as of June 30, 2024 due to the size of their operations and because the sale represents a strategic shift (refer to Note 18, Discontinued Operations, for additional detail).
In connection with the sale,
the Company recorded a gain on sale of business unit of $
Additionally, the asset purchase
agreement includes a non-compete which precludes the Company from operating businesses similar to that of AWS PR and Tropical. As a result,
both subsidiaries also now qualify for discontinued operations treatment as of June 30, 2024 (refer to Note 18, Discontinued Operations,
for additional detail). The operations of AWS PR and Tropical had net loss and net income of $
14
| 4. | Property and Equipment |
| June 30 | December 31 | |||||||
| 2024 | 2023 | |||||||
| Computers and office equipment | $ | $ | ||||||
| Vehicles | ||||||||
| Leasehold improvements | ||||||||
| Software | ||||||||
| Machinery and equipment | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Equipment, net | $ | $ | ||||||
During the six months ended
June 30, 2024 and 2023, the Company recorded depreciation expense of $
| 5. | Intangible Assets |
| Cost | Accumulated Amortization | Net carrying value at June 30, 2024 | Net carrying value at December 31, 2023 | |||||||||||||
| Customer relationship and lists | $ | $ | ( | ) | $ | $ | ||||||||||
| Trade names | ( | ) | ||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | $ | ||||||||||
During the six months ended
June 30, 2024 and 2023, the Company recorded amortization expense of $
15
| Year ending December 31, | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
| 6. | Related Party Transactions |
Loans Payable to Related Parties
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Promissory note issued to Mark Porter, | $ | $ | ||||||
| Convertible promissory note issued to Mark Porter, | ||||||||
| Convertible promissory note issued to Mark Porter, | ||||||||
| Total | $ | $ | ||||||
| Less: Current portion of loans payable to related parties | ( | ) | ( | ) | ||||
| Loans payable to related parties, net of current portion | $ | $ | ||||||
Promissory note, Mark Porter,
On June 1, 2021, the Company
issued a $
On December 15, 2021, this note matured and was due on demand.
On June 28, 2024, the Company
and the holder of the note entered into an amendment whereby outstanding accrued interest was added to the principal balance and the due
date of the note was changed to December 31, 2025. The updated principal amount is $
As June 30, 2024, the Company
owed $
16
Convertible promissory note, Mark Porter,
On December 6, 2023, the Company
issued to Mark Porter an unsecured promissory note in the aggregate principal amount of $
The note matured on
On June 28, 2024, the Company
and the holder of the note entered into an amendment whereby outstanding accrued interest and a penalty of $
As of June 30, 2024, the Company
owed $
Convertible promissory note, Mark Porter,
In connection with the Securities
Purchase Agreement discussed in Note 8, Convertible Debentures, on September 25, 2023, the Company issued to Mark Porter a senior subordinated
secured convertible promissory note in the aggregate principal amount of $
Additionally, in connection
with the note, the Company issued Mark Porter a warrant to purchase
The warrants, including those
issued to the placement agent, had a relative fair value of $
During the six months ended
June 30, 2024, the remaining principal balance of $
| 7. | Loans Payable |
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Future receivables financing agreement with Cedar Advance LLC, non-interest bearing, matures | $ | $ | ||||||
| Future receivables financing agreement with Pawn Funding, non-interest bearing, matures | ||||||||
| Future receivables financing agreement with Slate Advance LLC, non-interest bearing, matures | ||||||||
| Future receivables financing agreement with Meged Funding Group, non-interest bearing, matures | ||||||||
| Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand | ||||||||
| Future receivables financing agreement with Arin Funding LLC, non-interest bearing, matures | ||||||||
| Future receivables financing agreement with Arin Funding LLC, non-interest bearing, matures | ||||||||
| Total | $ | $ | ||||||
| Less: Current portion of loans payable | ( | ) | ( | ) | ||||
| Loans payable, net of current portion | $ | $ | ||||||
The Company’s loans payable have an effective interest rate range
of
17
Future receivables financing agreement with
Cedar Advance LLC, non-interest bearing, matures
On May 15, 2023, the Company,
together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale
of Future Receipts (the “Financing Agreement”) with Cedar Advance LLC. Under the Financing Agreement, the Financing Parties
sold to Cedar Advance future receivables in an aggregate amount equal to $
Pursuant to the terms of the
Financing Agreement, the Company agreed to pay Cedar Advance $
During the year ended December
31, 2023, the Company paid $
During June 2024, the Company and Cedar Advance LLC executed a settlement
agreement and release whereby the Company is to pay a total of $
During the six months ended
June 30, 2024, the Company paid $
As of June 30, 2024, the Company
owed $
Future receivables financing agreement with
Pawn Funding, non-interest bearing, matures
On May 15, 2023, the Company,
together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale
of Future Receipts (the “Financing Agreement”) with Pawn Funding. Under the Financing Agreement, the Financing Parties sold
to Pawn Funding future receivables in an aggregate amount equal to $
Pursuant to the terms of the
Financing Agreement, the Company agreed to pay Pawn Funding $
During the year ended December
31, 2023, the Company paid $
During June 2024, the Company and Pawn Funding executed a settlement
agreement whereby the Company is to pay a total of $
During the six months ended
June 30, 2024, the Company paid $
18
As of June 30, 2024, the Company
owed $
Future receivables financing agreement with
Slate Advance LLC, non-interest bearing, matures
On June 9, 2023, the Company,
together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale
of Future Receipts (the “Financing Agreement”) with Slate Advance. Under the Financing Agreement, the Financing Parties sold
to Slate Advance future receivables in an aggregate amount equal to $
Pursuant to the terms of the
Financing Agreement, the Company agreed to pay Slate Advance $
During the year ended December
31, 2023, the Company paid $
During May 2024, the Company and Slate Advance LLC executed a forbearance
and release agreement whereby the Company is to pay a total of $
During the six months ended
June 30, 2024, the Company paid $
As of June 30, 2024, the Company
owed $
Future receivables financing agreement with
Meged Funding Group, non-interest bearing, matures
On July 25, 2023, the Company,
together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale
of Future Receipts (the “Financing Agreement”) with Meged Funding Group. Under the Financing Agreement, the Financing Parties
sold to Slate Advance future receivables in an aggregate amount equal to $
Pursuant to the terms of the
Financing Agreement, the Company agreed to pay Meged Funding Group $
During the year ended December
31, 2023, the Company paid $
During June 2024, the Company and Meged Funding Group executed a settlement
agreement whereby the Company is to pay a total of $
During the six months ended
June 30, 2024, the Company paid $
As of June 30, 2024, the Company
owed $
19
Future receivables financing agreement with
Arin Funding LLC, non-interest bearing, matures
On August 25, 2023, the Company,
together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale
of Future Receipts (the “Financing Agreement”) with Arin Funding LLC. Under the Financing Agreement, the Financing Parties
sold to Arin Funding LLC future receivables in an aggregate amount equal to $
Pursuant to the terms of the
Financing Agreement, the Company agreed to pay Arin Funding LLC $
During the year ended December
31, 2023, the Company paid $
During the six months ended June 30, 2024, the Company paid $
Future receivables financing agreement with
Arin Funding LLC, non-interest bearing, matures
On September 5, 2023, the
Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement
of Sale of Future Receipts (the “Financing Agreement”) with Arin Funding LLC. Under the Financing Agreement, the Financing
Parties sold to Arin Funding LLC future receivables in an aggregate amount equal to $
Pursuant to the terms of the
Financing Agreement, the Company agreed to pay Arin Funding LLC $
During the year ended December
31, 2023, the Company paid $
During the six months ended June 30, 2024, the Company paid $
Future receivables financing agreements with J.J. Astor & Co., non-interest bearing, matures March 6, 2025
The Company, together with
its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an several bridge loan agreements
with J.J. Astor &Co., dated May 9, 2024 (Loan #1), May 16, 2024 (Loan #2), and May 23, 2024 (Loan #3). Under these loan agreements,
the Financing Parties issued warrants to J.J. Astor & Co., Warrant #1 dated May 9, 2024 to purchase
Pursuant to the terms of the
agreements, the Company agreed to pay J.J. Astor & Co. $
The Company, together with
its subsidiaries (collectively with the Company, the “Financing Parties”), entered into a Senior Loan Agreement with J.J.
Astor & Co., dated May 29, 2024. Under this Senior Loan Agreement, the Financing Parties collectively paid off the three previous
short term notes aggregating $
Pursuant to the terms of the
Senior Loan Agreement, the Company agreed to pay J.J. Astor & Co. $
During June 2024, the Company
and J.J. Astor & Co. executed a payoff agreement and release whereby the Company was to pay a total of $
20
Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand
On June 15, 2021, in connection
with the 2021 merger transaction, the Company assumed High Wire’s promissory note issued to InterCloud Systems, Inc. The note was
originally issued on February 27, 2018 in the principal amount of $
As of June 30, 2024, the Company
owed $
| 8. | Convertible Debentures |
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Convertible promissory note issued to Herald Investment Management Limited, | $ | $ | ||||||
| Convertible promissory note issued to 1800 Diagonal Lending LLC, | ||||||||
| Convertible promissory note, Jeffrey Gardner, | ||||||||
| Convertible promissory note, James Marsh, | ||||||||
| Convertible promissory note issued to Roger Ponder, | ||||||||
| Convertible promissory note issued to Kings Wharf Opportunities Fund, LP, | ||||||||
| Convertible promissory note issued to Mast Hill Fund, L.P., | ||||||||
| Convertible promissory note issued to FirstFire Global Opportunities Fund, LLC, | ||||||||
| Convertible promissory note issued to Mast Hill Fund, L.P., | ||||||||
| Total | $ | $ | ||||||
| Less: Current portion of convertible debentures, net of debt discount/premium | ( | ) | ( | ) | ||||
| Convertible debentures, net of current portion, net of debt discount | $ | $ | ||||||
The Company’s convertible
debentures have an effective interest rate range of
Convertible promissory note, Jeffrey Gardner,
On June 15, 2021 the Company
issued to Jeffrey Gardner an unsecured convertible promissory note in the aggregate principal amount of $
The interest on the outstanding
principal due under the note accrued at a rate of
On September 15, 2021, this
note matured and was due on demand. Additionally, the interest rate increased to
During the six months ended
June 30, 2024, the remaining principal balance of $
21
Convertible promissory note, James Marsh,
On June 15, 2021 the Company
issued to James Marsh an unsecured convertible promissory note in the aggregate principal amount of $
The interest on the outstanding
principal due under the note accrued at a rate of
On September 15, 2021, this
note matured and was due on demand. Additionally, the interest rate increased to
During the six months ended
June 30, 2024, the remaining principal balance of $
Convertible promissory note, Roger Ponder,
On June 15, 2021, in connection
with the 2021 merger transaction, the Company assumed High Wire’s convertible promissory note issued to Roger Ponder. The note was
originally issued on
On September 30, 2022, the
Company and the holder of the note mutually agreed to extend the maturity date to
On December 31, 2022, the
Company and the holder of the note mutually agreed to extend the maturity date to
On March 31, 2023, the Company
and the holder of the note mutually agreed to extend the maturity date to
On June 30, 2023, the Company
and the holder of the note mutually agreed to extend the maturity date to
On September 30, 2023, the
Company and the holder of the note mutually agreed to extend the maturity date to
22
On December 31, 2023, the
Company and the holder of the note mutually agreed to extend the maturity date to
On March 31, 2024, the Company and the holder of the note mutually agreed to extend the maturity date to June 30, 2024. The terms of the note were unchanged.
During the six months ended
June 30, 2024, the remaining principal balance of $
Securities Purchase Agreement – September 2023
On September 25, 2023, the
Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company may issue to
accredited investors (the “Investors”)
The Notes mature 18 months
after issuance (the “Maturity Date”), bear interest at a rate of
The Notes constitute senior secured indebtedness of the Company, subject to a preexisting senior lien, and are guaranteed by all existing or future formed, direct and indirect, domestic subsidiaries of the Company (the “Guarantors”) pursuant to a subsidiary guarantee (the “Subsidiary Guarantee”) with the collateral agent for the Investor (the “Agent”). On September 25, 2023, the Company, the Investor, the Guarantors and the Agent also entered into a security agreement (the “Security Agreement”) pursuant to which the Notes are secured by a lien in, and security interest upon, and a right of set-off against all of its right, title and interest of whatsoever kind and nature in and to, all assets of the Company and the Guarantors, subject to customary and mutually agreed permitted liens.
The Warrant is exercisable
at an initial exercise price of $
As of June 30, 2024, the Company
had issued an aggregate of $
Additionally, the placement
agent for the Purchase agreement receives
For information on the debt
issued under the agreement, refer to the “Convertible promissory note, Herald Investment Management Limited,
23
Convertible promissory note, Herald Investment
Management Limited,
On September 25, 2023, the
Company issued to Herald Investment Management Limited a senior subordinated secured convertible promissory note in the aggregate principal
amount of $
Additionally, in connection
with the note, the Company issued Herald Investment Management Limited a warrant to purchase
The warrants, including those
issued to the placement agent, had a relative fair value of $
As of June 30, 2024, the Company
owed $
Convertible promissory note, Kings Wharf Opportunities
Fund, LP,
On September 25, 2023, the
Company issued to Kings Wharf Opportunities Fund, LP a senior subordinated secured convertible promissory note in the aggregate principal
amount of $
Additionally, in connection
with the note, the Company issued Kings Wharf Opportunities Fund, LP a warrant to purchase
The warrants, including those
issued to the placement agent, had a relative fair value of $
During the six months ended
June 30, 2024, the remaining principal balance of $
Securities Purchase Agreement – December 2023
On December 7, 2023, the Company
entered into a securities purchase agreement pursuant to which the Company may issue to accredited investors (the “Investors”)
The notes have a term of
As of June 30, 2024, the Company
had issued an aggregate of $
24
For information on the debt
issued under the agreement, refer to the “Convertible promissory note, Mast Hill Fund, L.P.,
In connection with the issuances
of debt discussed below, the Company issued
Convertible promissory note, Mast Hill Fund,
L.P.,
On December 7, 2023, the Company
issued to Mast Hill Fund, L.P. a senior convertible promissory note in the aggregate principal amount of $
Additionally, in connection
with the note, the Company issued Mast Hill Fund, L.P.
On December 7, 2023, the Company
issued
The warrants qualified for
warrant liability accounting under ASC 480 “Distinguishing Liabilities from Equity”. The initial fair value of the
warrants was $
A total of $
On January 1, 2024, $
During the six months ended June 30, 2024, the remaining principal
balance of $
Convertible promissory note, FirstFire Global
Opportunities Fund, LLC,
On December 11, 2023, the
Company issued to FirstFire Global Opportunities Fund, LLC a senior convertible promissory note in the aggregate principal amount of $
Additionally, in connection
with the note, the Company issued FirstFire Global Opportunities Fund, LLC
25
On December 11, 2023, the
Company issued
The warrants qualified for
warrant liability accounting under ASC 480 “Distinguishing Liabilities from Equity”. The initial fair value of the
warrants was $
A total of $
On January 1, 2024, $
During the six months ended June 30, 2024, the remaining principal
balance of $
Convertible promissory note, Mast Hill Fund,
L.P.,
On January 11, 2024, the Company
issued to Mast Hill Fund, L.P. a senior convertible promissory note in the aggregate principal amount of $
Additionally, in connection
with the note, the Company issued Mast Hill Fund, L.P.
On January 11, 2024, the Company
issued
The warrants qualified for
warrant liability accounting under ASC 480 “Distinguishing Liabilities from Equity”. The initial fair value of the
warrants was $
A total of $
During the six months ended June 30, 2024, the remaining principal
balance of $
26
Convertible promissory note, 1800 Diagonal
Lending LLC,
On January 24, 2024, the Company
issued to 1800 Diagonal Lending LLC an unsecured convertible promissory note in the aggregate principal amount of $
During the six months ended
June 30, 2024, the Company paid $
As of June 30, 2024, the Company
owed $
| 9. | Factor Financing |
On February 22, 2023, ADEX,
a former subsidiary of the Company, entered into an amendment to its factor financing agreement, pursuant to which ADEX agreed to sell
and assign and Bay View Funding agreed to buy and accept, certain accounts receivable owing to ADEX. The amendment amended the agreement
to include the Company’s HWN and SVC subsidiaries. Under the terms of the Amendment, upon the receipt and acceptance of each assignment
of accounts receivable, Bay View Funding will pay ADEX, HWN and SVC, individually and together, ninety percent (
Under the factoring agreement,
HWN and SVC may borrow up to the lesser of $
On March 6, 2023, in connection with the divestiture of the ADEX Entities, the amounts owed and related to ADEX accounts receivable were assumed by the buyer.
During the six months ended
June 30, 2024, the Company paid $
During the six months ended
June 30, 2024, the Company received an aggregate of $
The Company owed under the agreement as of June 30, 2024 and the Company will receive no further amounts from Bay View Funding.
| 10. | Warrant Liabilities |
Certain of the warrants related to the convertible debentures described in Note 8, Convertible Debentures, qualify for liability classification under ASC 480, “Distinguishing Liabilities from Equity”. The fair value of the warrant liabilities was measured upon issuance and is re-measured at the end of every reporting period, with the change in fair value reported in the consolidated statement of operations as a gain or loss on change in fair value of warrant liabilities.
27
During the six months ended June 30, 2024, in connection with the related
notes being paid off in full, the Second Warrants were canceled and extinguished, resulting in a gain on extinguishment of warrant liabilities
of $
| June 30, | ||||
| 2024 | ||||
| Balance at the beginning of the period | $ | |||
| Issuance of warrants | ||||
| Change in fair value of warrant liabilities | ( | ) | ||
| Return of warrants | ( | ) | ||
| Balance at the end of the period | ||||
The Company uses Level 3 inputs for its valuation methodology for the warrant liabilities as their fair values were determined by using either the Black-Scholes model based on various assumptions or the price of the Company’s common stock.
Significant changes in any
of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based
on the lowest level of input that is significant to the fair value measurement.
| Expected volatility | Risk-free interest rate | Expected dividend yield | Expected life (in years) | |||||||||||
| At June 30, 2024 | % | % | % | |||||||||||
| At December 31, 2023 | % | % | % | |||||||||||
| 11. | Common Stock |
Authorized shares
The Company has
28
| 12. | Preferred Stock |
See below for a description of each of the Company’s outstanding classes of preferred stock, including historical and current information.
Series B
On April 16, 2018, High Wire
designated
Issue Price — The
stated price for the Series B preferred stock shares shall be $
Redemption — The Series B preferred stock shares are not redeemable.
Dividends — The holders of the Series B preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation
— The Corporation’s Series A preferred stock (the “Senior Preferred Stock) shall have a liquidation preference
senior to the Series B preferred stock. Upon any fundamental transaction, liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of the shares of the Series B preferred stock shares shall be entitled, after any distribution or
payment is made upon any shares of capital stock of the Company having a liquidation preference senior to the Series B preferred stock
shares, including the Senior Preferred Stock, but before any distribution or payment is made upon any shares of common stock or other
capital stock of the Company having a liquidation preference junior to the Series B preferred stock shares, to be paid in cash the sum
of $
29
Voting — The
holders of shares of Series B preferred stock shall be voted together with the shares of common stock such that the aggregate voting power
of the Series B preferred stock is equal to
Conversion — There are no conversion rights.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series B preferred stock shares as temporary equity or “mezzanine.”
Series D
On June 14, 2021, High Wire
designated
On December 13, 2021, the
Company made the first amendment to the Certificate of Designation of its Series D preferred stock which changed the conversion right.
As a result of this amendment, the Company recorded a deemed dividend of $
Subsequent to the first amendment, the principal terms of the Series D preferred stock shares are as follows:
Issue Price — The
stated price for the Series D preferred stock shares shall be $
Redemption — The Series D preferred stock shares are not redeemable.
Dividends — The holders of the Series D preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation
— Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”),
the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to
$
Voting — Except
as otherwise provided in the agreement or as required by law, the Series D shall be voted together with the shares of common stock, par
value $
Conversion — Beginning
ninety (90) days from the date of issuance, all or a portion of the Series D may be converted into Common Stock at the greater of the
Fixed Price and the Average Price (as defined below). On the business day immediately preceding the listing of the Common Stock on a national
securities exchange (the “Automatic Series D Conversion Date”), without any further action, all shares of Series D shall automatically
convert into shares of Common Stock at the Fixed Price, which is defined as the closing price of the Common Stock on the trading day immediately
preceding the date of issuance of the Series D ( subject to adjustment for any reverse or forward split of the Common Stock). The Series
D shares were issued on June 16, 2021, and the closing price of the Company’s common stock was $
30
Vote to Change the Terms
of or Issuance of Series D — The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting,
of the holders of not less than fifty-one (
As of June 30, 2024, the carrying
value of the Series D Preferred Stock was $
Series E
On December 20, 2021, the
Company designated
The principal terms of the Series E preferred stock shares are as follows:
Issue Price — The
stated price for the Series E preferred stock shares shall be $
Redemption — The Series E preferred stock shares are not redeemable.
Dividends — The holders of the Series E preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation
— Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”),
the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to
$
Voting — Except
as otherwise provided herein or as required by law, the Series E shall be voted together with the shares of common stock, par value $
Conversion — Beginning
ninety (90) days from the date of issuance, all or a portion of the Series E may be converted into Common Stock at the Fixed Price (as
defined below). On the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic
Series E Conversion Date”), without any further action, all shares of Series E shall automatically convert into shares of Common
Stock at the Fixed Price. “Fixed Price” shall be defined as the closing price of the Common Stock on the trading day immediately
preceding the date of issuance of the Series E (subject to adjustment for any reverse or forward split of the Common Stock or similar
occurrence). The Series E shares were issued on December 30, 2021, and the closing price of the Company’s common stock was $
Vote to Change the Terms
of or Issuance of Series E — The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting,
of the holders of not less than fifty-one (
As of June 30, 2024, the carrying
value of the Series E Preferred Stock was $
31
| 13. | Share Purchase Warrants and Stock Options |
In connection with the issuance
of new convertible debentures during December 2023 and January 2024, the associated warrants qualified for liability classification. The
fair value of these warrants was $
During June 2024, current employees of the Company with outstanding underwater stock options were given the option of returning the existing options in exchange for new options with an exercise price based on the closing price on the date of the election. The exchanged options were considered canceled. The effective date of the election was June 21, 2024.
| Number of warrants | Weighted average exercise price | Intrinsic value | ||||||||||
| Balance at December 31, 2023 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Expired/forfeited | ( | ) | ||||||||||
| Outstanding at June 30, 2024 | $ | $ | ||||||||||
| Exercisable at June 30, 2024 | $ | $ | ||||||||||
| Number of warrants | Exercise price | Issuance Date | Expiry date | Remaining life | ||||||||||
| Number of stock options | Weighted average exercise price | Intrinsic value | ||||||||||
| Balance at December 31, 2023 | $ | $ | ||||||||||
| Issued | - | |||||||||||
| Exercised | - | |||||||||||
| Canceled/expired/forfeited | ( | ) | - | |||||||||
| Outstanding at June 30, 2024 | $ | $ | ||||||||||
| Exercisable at June 30, 2024 | $ | $ | ||||||||||
32
| Number of stock options | Exercise price | Issuance Date | Expiry date | Remaining Life | ||||||||
The remaining stock-based compensation expense on unvested stock options
was $
| 14. | Leases |
The Company leases certain office space and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term. The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities.
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Operating lease assets | $ | $ | ||||||
| Operating lease liabilities: | ||||||||
| Current operating lease liabilities | ||||||||
| Long term operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
Expense related to leases
is recorded on a straight-line basis over the lease term, including rent holidays. During the six months ended June 30, 2024 and 2023,
the Company recognized operating lease expense of $
Cash paid for amounts included
in the measurement of operating lease liabilities were $
The operating lease liabilities
as of June 30, 2024 reflect a weighted average discount rate of
| Year ending December 31, | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total | $ | |||
33
| 15. | Commitments and Contingencies |
Leases
The Company leases its principal offices under a lease that expires in 2026. Leases with an initial term of 12 months or less and immaterial leases are not recorded on the balance sheet (refer to Note 14, Leases, for amounts expensed during the six months ended June 30, 2024 and 2023).
Legal proceedings
In the normal course of business or otherwise, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.
| 16. | Segment Disclosures |
During the six months ended
June 30, 2024 and 2023, the Company had
| ● | Cybersecurity, which is comprised of HWN and OCL. |
| ● | SVC, which consists of the Company’s SVC subsidiary. | |
| ● | Corporate, which consists of the rest of the Company’s operations. |
Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria. The Company operates all reporting segments in one geographical area (the United States).
| Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||
| Corporate | Cybersecurity | SVC | Total | Corporate | Cybersecurity | SVC | Total | |||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Operating (loss) income | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||||||||
| Total assets as of June 30, 2024 | ||||||||||||||||||||||||||||||||
34
| Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||
| Corporate | Cybersecurity | SVC | Total | Corporate | Cybersecurity | SVC | Total | |||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||||||||
| Total assets as of December 31, 2023 | ||||||||||||||||||||||||||||||||
| 17. | Earnings Per Share |
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) attributable to High Wire Networks, Inc. common shareholders | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Denominator | ||||||||||||||||
| Weighted average common shares outstanding, basic | ||||||||||||||||
| Effect of dilutive securities | ||||||||||||||||
| Weighted average common shares outstanding, diluted | ||||||||||||||||
| Income (loss) per share attributable to High Wire Networks, Inc. common shareholders, basic: | ||||||||||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) from discontinued operations, net of taxes | $ | $ | $ | $ | ( | ) | ||||||||||
| Net income (loss) per share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Income (loss) per share attributable to High Wire Networks, Inc. common shareholders, diluted: | ||||||||||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) from discontinued operations, net of taxes | $ | $ | $ | $ | ( | ) | ||||||||||
| Net income (loss) per share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
35
| 18. | Discontinued Operations |
On March 6, 2023, HWN divested the ADEX Entities. The divestiture of the ADEX Entities qualified for discontinued operations treatment.
The results of operations of the ADEX Entities have been included within net income (loss) from discontinued operations, net of tax, on the unaudited condensed consolidated statements of operations for the six months ended June 30, 2023.
On June 27, 2024, HWN sold the assets of its technology services business unit. The operations of the sold business unit qualified for discontinued operations treatment.
The assets and liabilities of the sold business unit as of December 31, 2023 have been included within the unaudited condensed consolidated balance sheet as current assets of discontinued operations and current liabilities of discontinued operations.
The results of operations of the sold business unit have been included within net income (loss) from discontinued operations, net of tax, on the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023.
In connection with the sale of HWN’s technology services business unit, the Company is now subject to a non-compete which precludes it from operating businesses similar to that of AWS PR and Tropical. As a result, both subsidiaries qualify for discontinued operations treatment.
The assets and liabilities of AWS PR and Tropical as of June 30, 2024 and December 31, 2023 have been included within the unaudited condensed consolidated balance sheet as current assets of discontinued operations and current liabilities of discontinued operations.
The results of operations of AWS PR and Tropical have been included within net income (loss) from discontinued operations, net of tax, on the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023.
| June 30, 2024 | December 31, 2023 | |||||||
| Current assets: | ||||||||
| Cash | $ | - | $ | |||||
| Accounts receivable | - | |||||||
| Current assets of discontinued operations | $ | - | $ | |||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Contract liabilities | - | |||||||
| Current liabilities of discontinued operations | $ | $ | ||||||
36
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ||||||||||||
| Other income (expenses): | ||||||||||||||||
| Gain on sale of business unit | ||||||||||||||||
| Other income | ||||||||||||||||
| Gain (loss) on disposal of subsidiary | ( | ) | ||||||||||||||
| Exchange loss | ( | ) | ||||||||||||||
| Total other income (expense) | ( | ) | ||||||||||||||
| Pre-tax income (loss) from discontinued operations | ( | ) | ||||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income (loss) from discontinued operations, net of tax | $ | $ | $ | $ | ( | ) | ||||||||||
37
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plan”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited condensed consolidated financial statements are stated in United States dollars ($) and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
All references to “common stock” refer to the common shares in our capital stock.
Unless specifically set forth to the contrary, when used in this report the terms “we”, “our”, the “Company” and similar terms refer to High Wire Networks, Inc., a Nevada corporation, and its consolidated subsidiaries.
The information that appears on our website at www.HighWireNetworks.com is not part of this report.
Description of Business
Business Overview
HWN, Inc., (d/b/a High Wire Network Solutions, Inc.) (“HWN”) was incorporated in Delaware on January 20, 2017. HWN is a global provider of managed cybersecurity and managed networks delivered exclusively through a channel sales model. Our Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment. HWN has continuously operated under the High Wire Networks brand for more than 20 years.
HWN and JTM Electrical Contractors, Inc. (“JTM”), an Illinois Corporation, entered into an operating agreement through which High Wire owned 50% of JTM. On February 15, 2022, HWN sold its 50% interest in JTM.
On June 16, 2021, we completed a merger with Spectrum Global Solutions, Inc. On January 7, 2022, Spectrum Global Solutions, Inc. legally changed its name to High Wire Networks, Inc. (“High Wire”). The merger was accounted for as a reverse merger. At the time of the reverse merger, High Wire’s subsidiaries included ADEX Corporation, ADEX Puerto Rico LLC, ADEX Canada, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”), AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”). For accounting purposes, HWN is the surviving entity. On March 6, 2023, HWN divested the ADEX Entities. On July 31, 2023, HWN paused the operations of its AWS PR subsidiary. On November 3, 2023, HWN paused the operations of its Tropical subsidiary.
On November 4, 2021, we closed on the acquisition of Secure Voice Corp (“SVC”). The closing of the acquisition was facilitated by a senior secured promissory note which has been repaid.
On August 4, 2023, we formed a new entity – incorporated as Overwatch Cyberlab, Inc. (“OCL”) – which is 80% owned by our company and 20% owned by John Peterson.
38
On June 27, 2024, HWN entered into an asset purchase agreement with INNO4 LLC pursuant to which INNO4 LLC agreed to purchase certain assets of HWN related to our technology services business unit. Additionally, the asset purchase agreement includes a non-compete which precludes our company from operating businesses similar to that of AWS PR and Tropical.
Our SVC subsidiary is a wholesale network services provider with network footprint in the Northeast United States. This network carries VoIP and other traffic for other service providers.
We provide the following category of offerings to our customers:
| ● | Security: High Wire’s award-winning Overwatch Managed Security offers organizations end-to-end protection for networks, data, endpoints, and users via multiyear recurring revenue contracts in this fast-growing technology segment. This segment is nearly 100% recurring revenue with multi-year contracts. Overwatch delivers services through Managed Service Providers (MSPs), strategic partnerships and alliances, Value Added Resellers (VARs), Distributors, and Network Service Providers. |
Our Operating Units
Our company is comprised of the following:
| ● | Managed Services: The Managed Services Segment encompasses all of our recurring revenue businesses including our Overwatch Managed Cybersecurity, all network managed services, all managed services performed under a Statement of Work (SoW), and our SVC revenue. |
Results of Operations for the Three-Month Periods Ended June 30, 2024 and 2023
Our operating results for the three-month periods ended June 30, 2024 and 2023 are summarized as follows:
| For the three months ended | ||||||||
| June 30, | ||||||||
| Statement of Operations Data: | 2024 | 2023 | ||||||
| Revenue | $ | 1,937,618 | $ | 1,699,542 | ||||
| Operating expenses | 4,941,332 | 4,496,841 | ||||||
| Loss from operations | (3,003,714 | ) | (2,797,299 | ) | ||||
| Total other expense | (71,475 | ) | (1,922,302 | ) | ||||
| Net income from discontinued operations, net of tax | 7,860,514 | 577,606 | ||||||
| Net income (loss) attributable to common shareholders | 4,785,325 | (4,141,995 | ) | |||||
Revenues
Our revenue increased from $1,699,542 for the three months ended June 30, 2023 to $1,937,618 for the three months ended June 30, 2024, an increase of $238,076. Additionally, there was an improvement in gross profit (revenue minus cost of revenue) of $358,825. The improvement in the gross profit as a percentage of revenue from 25% for the three months ended June 30, 2023 to 41% for the three months ended June 30, 2024 was primarily related to an improvement in more cost-efficient software provider contracts as well as efficiencies resultant in a larger install base.
A significant portion of our services are performed under master service agreements and other arrangements with customers that extend for periods of one or more years. We are currently party to numerous master service agreements with our channel partner managed service providers (“MSPs”). Most MSPs have multiple sub-agreements with us supporting their end-customer base. Contract terms with MSPs are typically three-year agreements.
39
Operating Expenses
During the three months ended June 30, 2024, our operating expenses were $4,941,332, compared to $4,496,841 for the same period of 2023. The increase of $444,491 is primarily related to an $829,077 increase in salaries and wages due to increasing personnel costs as we increase investment in our cybersecurity business, as well as bonuses related to meeting certain strategic objectives. This increase was partially offset by a decrease of $282,617 in general and administrative expenses due to certain cost cutting measures.
Other Expense
During the three months ended June 30, 2024, we had other expense of $71,475, compared to $1,922,302 for the same period of 2023. The decrease of $1,850,827 is primarily related to one time liquidated damages related to escrow shares of $1,222,000 in the 2023 period along with a gain on extinguishment of warrant liabilities of $921,422 and a gain on settlement of debt of $219,330 in the 2024 period. These changes were partially offset by an increase in interest expense of $341,636 in the 2024 period compared to the same period of 2023.
Net Income from Discontinued Operations, Net of Tax
For the three months ended June 30, 2024, we had net income from discontinued operations, net of tax of $7,860,514, compared to $577,606 in the same period of 2023. The 2024 period included a loss from operations of $90,259 and the gain on sale of business unit of $7,950,773, while the 2023 period included income from operations of $577,606.
Net Income (Loss)
For the three months ended June 30, 2024, we had net income attributable to High Wire Networks, Inc. common shareholders of $4,785,325, compared to a net loss of $4,141,995 in the same period of 2023.
Results of Operations for the Six-Month Periods Ended June 30, 2024 and 2023
Our operating results for the six-month periods ended June 30, 2024 and 2023 are summarized as follows:
| For the six months ended | ||||||||
| June 30, | ||||||||
| Statement of Operations Data: | 2024 | 2023 | ||||||
| Revenue | $ | 3,999,121 | $ | 3,648,640 | ||||
| Operating expenses | 8,530,160 | 8,428,140 | ||||||
| Loss from operations | (4,531,039 | ) | (4,779,500 | ) | ||||
| Total other (expense) income | (835,077 | ) | 2,214,662 | |||||
| Net income (loss) from discontinued operations, net of tax | 9,737,003 | (1,408,848 | ) | |||||
| Net income (loss) attributable to common shareholders | 4,370,887 | (3,973,686 | ) | |||||
Revenues
Our revenue increased from $3,648,640 for the six months ended June 30, 2023 to $3,999,121 for the six months ended June 30, 2024, an increase of $350,481. Additionally, there was an improvement in gross profit (revenue minus cost of revenue) of $709,233. The improvement in the gross profit as a percentage of revenue from 28% for the six months ended June 30, 2023 to 43% for the six months ended June 30, 2024 was primarily related to an improvement in more cost-efficient software provider contracts as well as efficiencies resultant in a larger install base..
A significant portion of our services are performed under master service agreements and other arrangements with customers that extend for periods of one or more years. We are currently party to numerous master service agreements with our channel partner managed service providers (“MSPs”). Most MSPs have multiple sub-agreements with us supporting their end-customer base. Contract terms with MSPs are typically three-year agreements.
Operating Expenses
During the six months ended June 30, 2024, our operating expenses were $8,530,160, compared to $8,428,140 for the same period of 2023. The increase of $102,020 is primarily related to a $1,444,406 increase in salaries and wages due to increasing personnel costs as we increase investment in our cybersecurity business, as well as bonuses related to meeting certain strategic objectives. This increase was partially offset by a decrease of $989,605 in general and administrative expenses due to certain cost cutting measures.
40
Other (Expense) Income
During the six months ended June 30, 2024, we had other expense of $835,077, compared to other income of $2,214,662 for the same period of 2023. The change of $3,049,739 is primarily related to a gain on change in fair value of derivative liabilities of $3,140,404 and a gain on extinguishment of derivatives of $1,692,232 during the 2023 period. These changes were partially offset by one time liquidated damages related to escrow shares of $1,222,000 in the 2023 period along with a gain on extinguishment of warrant liabilities of $921,422 and a gain on settlement of debt of $219,330 during the 2024 period.
Net Income (Loss) from Discontinued Operations, Net of Tax
For the three months ended June 30, 2024, we had net income from discontinued operations, net of tax of $9,737,003, compared to a net loss from discontinued operations, net of tax of $1,408,848 in the same period of 2023. The 2024 period included income from operations of $1,784,730, the gain on sale of business unit of $7,950,773, and other income of $1,500, while the 2023 period included income from operations of $26,467, the loss on disposal of subsidiary of $1,434,392, and an exchange loss of $923.
Net Income (Loss)
For the six months ended June 30, 2024, we had net income attributable to High Wire Networks, Inc. common shareholders of $4,370,887, compared to a net loss of $3,973,686 in the same period of 2023.
Liquidity and Capital Resources
As of June 30, 2024, our total current assets were $5,773,440 and our total current liabilities were $8,959,269, resulting in a working capital deficit of $3,185,829, compared to a working capital deficit of $9,915,819 as of December 31, 2023.
We have historically suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. In this regard, we have historically raised additional capital through equity offerings and loan transactions.
Cash Flows
| For the six months ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (2,350,561 | ) | $ | (4,848,206 | ) | ||
| Net cash provided by investing activities | $ | 9,766,983 | $ | 50,000 | ||||
| Net cash (used in) provided by financing activities | $ | (3,559,394 | ) | $ | 5,407,058 | |||
| Change in cash | $ | 3,857,028 | $ | 608,852 | ||||
For the six months ended June 30, 2024, cash increased $3,857,028, compared to an increase in cash of $608,852 for the same period of 2023.
As of June 30, 2024, we had cash of $4,185,310 compared to $328,282 as of December 31, 2023.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Inflation
The effect of inflation on our revenue and operating results has not been significant.
41
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures.
Our management, with the participation of our Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our Chief Executive Officer concluded that, as a result of the material weaknesses described below, as of June 30, 2024, our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:
| a) | Due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. The areas where we have a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis; |
| b) | we do not have any formally adopted internal controls surrounding our cash and financial reporting procedures; and |
| c) | the lack of the quantity of resources to implement an appropriate level of review controls to properly evaluate the completeness and accuracy of transactions entered into by our company. |
We are committed to improving our financial organization. In addition, we will look to increase our personnel resources and technical accounting expertise within the accounting function to resolve non-routine or complex accounting matters.
Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
42
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.
Item 1A. Risk Factors
As a “smaller reporting company,” we are not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Item 6. Exhibits
| Exhibit # | Exhibit Description | |
| 31.1* | Certification of the Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of the Principal Financial Officer and Principal Accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2* | Certification of the Principal Financial Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| High Wire Networks, Inc. | ||
| Date: August 23, 2024 | By: | /s/ Mark W. Porter |
| Mark W. Porter | ||
| Chief Executive Officer | ||
| High Wire Networks, Inc. | ||
| Date: August 23, 2024 | By: | /s/ Curtis E. Smith |
| Curtis E. Smith | ||
| Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer | ||
44
Exhibit 31.1
CERTIFICATION
I, Mark W. Porter, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of High Wire Networks, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 23, 2024 | ||
| By: | /s/ Mark W. Porter | |
| Mark W. Porter | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Curtis E. Smith, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of High Wire Networks, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 23, 2024 | ||
| By: | /s/ Curtis E. Smith | |
| Curt E. Smith | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
Exhibit 32.1
Section 1350 CERTIFICATION
In connection with this Quarterly Report of High Wire Networks, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2024, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Mark W. Porter, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 23, 2024 | ||
| By: | /s/ Mark W. Porter | |
| Mark W. Porter | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 32.2
Section 1350 CERTIFICATION
In connection with this Quarterly Report of High Wire Networks, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2024, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Curtis E. Smith, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 23, 2024 | ||
| By: | /s/ Curtis E. Smith | |
| Curt E. Smith | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
Organization |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2024 | |||
| Organization [Abstract] | |||
| Organization |
HWN, Inc., (d/b/a High Wire Network Solutions, Inc.) (“HWN” or the “Company”) was incorporated in Delaware on January 20, 2017. The Company is a global provider of managed cybersecurity and managed networks delivered exclusively through a channel sales model. The Company’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment.
HWN and JTM Electrical Contractors, Inc. (“JTM”), an Illinois Corporation, entered into an operating agreement through which High Wire owned 50% of JTM.
On June 16, 2021, the Company completed a merger with Spectrum Global Solutions, Inc. On January 7, 2022, Spectrum Global Solutions, Inc. legally changed its name to High Wire Networks, Inc. (“High Wire” or, collectively with HWN, “the Company”). The merger was accounted for as a reverse merger. At the time of the reverse merger, High Wire’s subsidiaries included ADEX Corporation, ADEX Puerto Rico LLC, ADEX Canada, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”), AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”). For accounting purposes, HWN is the surviving entity.
High Wire was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, High Wire reincorporated in the province of British Columbia, Canada.
On November 4, 2021, the Company closed on its acquisition of Secure Voice Corp (“SVC”). The closing of the acquisition was facilitated by a senior secured promissory note.
On February 15, 2022, HWN sold its 50% interest in JTM, which qualified for discontinued operations treatment.
On March 6, 2023, HWN divested the ADEX Entities. The divestiture of the ADEX Entities qualified for discontinued operations treatment (refer to Note 18, Discontinued Operations, for additional detail).
On July 31, 2023, the Company paused the operations of its AWS PR subsidiary and sold off certain assets.
On August 4, 2023, the Company formed a new entity – incorporated as Overwatch Cyberlab, Inc. (“OCL”) – which is 80% owned by the Company and 20% owned by John Peterson.
On November 3, 2023, the Company paused the operations of its Tropical subsidiary.
On June 27, 2024, HWN entered into an asset purchase agreement with INNO4 LLC (the “Buyer”) pursuant to which the Buyer agreed to purchase certain assets of HWN related to the Company’s technology services business unit (refer to Note 3, Recent Subsidiary Activity, for additional detail). The assets related to the technology services business unit qualified for discontinued operations treatment. Additionally, the asset purchase agreement includes a non-compete which precludes the Company from operating businesses similar to that of AWS PR and Tropical. As a result, both subsidiaries also now qualify for discontinued operations treatment. (refer to Note 18, Discontinued Operations, for additional detail).
The Company’s SVC subsidiary is a wholesale network services provider with network footprint and licenses in the Northeast and Southeast United States as well as Texas. This network carries VoIP and other traffic for other service providers. |
Significant Accounting Policies |
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| Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Significant Accounting Policies |
Condensed Financial Statements
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position and the results of its operations and its cash flows for the periods shown.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be expected for the full year.
Basis of Presentation/Principles of Consolidation
These unaudited condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These unaudited condensed consolidated financial statements include the accounts of the Company as well as High Wire and its subsidiaries, SVC and OCL. All subsidiaries are wholly-owned.
All inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for services performed but not billed. Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, and changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance for doubtful accounts at June 30, 2024 and December 31, 2023 was $71,647 and $81,359, respectively.
Property and Equipment
Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:
Goodwill
The Company has two reporting units, HWN and SVC, and tests its goodwill for impairment at least annually on December 31 and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.
The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were impairment charges during the three and six months ended June 30, 2024 and 2023.
In connection with the sale of HWN’s technology services business unit discussed in Note 3, Recent Subsidiary Activity, the Company assigned $1,349,681 of HWN’s goodwill to the sold assets. This amount was based on relative fair values in accordance with ASC 350-20-40 and is included in the gain on sale of business unit within net income (loss) from discontinued operations, net of tax on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024.
Intangible Assets
At June 30, 2024 and December 31, 2023, definite-lived intangible assets consisted of tradenames and customer relationships which are being amortized over their estimated useful lives of 10 years.
The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value. There were impairment charges during the three and six months ended June 30, 2024 and 2023.
The sale of HWN’s technology services business unit discussed in Note 3, Recent Subsidiary Activity included all of HWN’s remaining intangible assets. The net book value at the time of the sale of $121,826 is included in the gain on sale of business unit within net income (loss) from discontinued operations, net of tax on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024.
Long-lived Assets
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. There were impairment charges during the three and six months ended June 30, 2024 and 2023.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company conducts business, and files federal and state income, franchise or net worth, tax returns in United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2020 to 2023. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of the U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.
The Company follows the guidance set forth within ASC 740, “Income Taxes” which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense.
Prior to 2021, the Company had elected to be treated as a Subchapter S Corporation for income tax purposes, and as such recognized no income tax liability or benefit.
Revenue Recognition
The Company recognizes revenue based on the five criteria for revenue recognition established under ASC 606, “Revenue from Contracts with Customers”: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.
Contract Types
The Company’s contracts fall under two main types: 1) fixed-price and 2) time-and-materials. Fixed-price contracts are based on purchase order line items that are billed on individual invoices as the project progresses and milestones are reached. Time-and-materials contracts include employees working on an as needed basis at customer locations and materials costs incurred by those employees.
A significant portion of the Company’s revenues come from customers with whom the Company has a master service agreement (“MSA”). These MSA’s generally contain customer specific service requirements.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue service types, the performance obligation is satisfied at different times. For professional services revenue, the performance obligation is met when the work is performed. In certain cases, this may be each day or each week, depending on the customer. For construction services, the performance obligation is met when the work is completed and the customer has approved the work.
Revenue Service Types
The following is a description of the Company’s revenue service types:
Disaggregation of Revenues
The Company disaggregates its revenue by operating segment (refer to Note 16, Segment Disclosures, for additional information).
Contract Assets and Liabilities
Contract assets would include costs and services incurred on contracts with open performance obligations. These amounts would be included in contract assets on the unaudited condensed consolidated balance sheets. At June 30, 2024 and December 31, 2023, the Company did not have any contract assets.
Contract liabilities include payment received for incomplete performance obligations and are included in contract liabilities on the unaudited condensed consolidated balance sheets. At June 30, 2024 and December 31, 2023, contract liabilities totaled $364,930 and $80,819, respectively.
Cost of Revenues
Cost of revenues includes all direct costs of providing services under the Company’s contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment, direct materials, insurance claims and other direct costs.
Research and Development Costs
Research and development costs are expensed as incurred.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the grant date fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718, at either the grant date fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in Accounting Standards Update (“ASU”) 2018-07. In accordance with ASU 2016-09, the Company accounts for forfeitures as they occur.
The Company uses certain pricing models to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period, which is generally the vesting period.
Income (Loss) per Share
The Company computes income (loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the conversion of convertible debentures or preferred stock and the exercise of stock options or warrants. Diluted EPS excludes dilutive potential shares if their effect is anti-dilutive. As of June 30, 2024 and December 31, 2023, respectively, the Company had 134,373,675 and 145,710,627 common stock equivalents outstanding. As of June 30, 2024, 31,431,129 of the common stock equivalents were dilutive.
Leases
ASC 842, “Leases” requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Certain of the Company’s lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.
The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months as of January 1, 2019. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, unamortized lease incentives provided by lessors, and restructuring liabilities, Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur. The Company has elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities.
Going Concern Assessment
Management assesses going concern uncertainty in the Company’s unaudited condensed consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the unaudited condensed consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
The Company generated operating losses in the three and six months ended June 30, 2024 and 2023, and High Wire has historically generated operating losses since its inception and has relied on cash on hand, sales of securities, external bank lines of credit, and issuance of third-party and related party debt to support cash flow from operations. As of and for the six months ended June 30, 2024, the Company had an operating loss of $4,531,039, cash flows used in continuing operations of $5,003,076, and a working capital deficit of $3,185,829. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these unaudited condensed consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.
Management believes that based on relevant conditions and events that are known and reasonably knowable, its forecasts of operations for one year from the date of the filing of the unaudited condensed consolidated financial statements in the Company’s Quarterly Report on Form 10-Q indicate improved operations and the Company’s ability to continue operations as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.
Recent Accounting Pronouncements
In November 2023, the Financial Standards Accounting Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company’s annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topics 740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.
Any other new accounting pronouncements recently issued, but not yet effective, have been reviewed and determined to be not applicable or were related to technical amendments or codification. As a result, the adoption of such new accounting pronouncements, when effective, is not expected to have a material effect on the Company’s financial position or results of operations.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk. As of June 30, 2024, HWN had a cash balance in excess of provided insurance of $3,793,332.
The Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the six months ended June 30, 2024 and 2023, no customers accounted for 10% or more of consolidated revenues or 10% or more of consolidated accounts receivable for either period.
The Company’s customers are all located within the domestic United States of America
Fair Value Measurements
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Warrant liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the six months ended June 30, 2024 and 2023. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
The Company’s financial assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2024 and December 31, 2023 consisted of the following:
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Refer to Note 10, Warrant Liabilities, for additional information.
Warrant Liabilities
The Company accounts for its liability-classified warrants in accordance with ASC 480, “Distinguishing Liabilities from Equity” and all warrant liabilities are reflected as liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its warrant liabilities. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of June 30, 2024 and December 31, 2023, respectively, the Company had warrant liabilities of $122,000 and $833,615.
Sequencing Policy
Under ASC 815-40-35, the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy. |
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Recent Subsidiary Activity |
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| Recent Subsidiary Activity [Abstract] | |||
| Recent Subsidiary Activity |
HWN Asset Purchase Agreement
On June 27, 2024, HWN entered into an asset purchase agreement with INNO4 LLC pursuant to which INNO4 LLC agreed to purchase certain assets of HWN related to the Company’s technology services business unit, for a base purchase price equal to $11,200,000, subject to adjustment as set forth in the agreement.
Upon closing, (i) $300,000 of the purchase price was deposited into escrow to satisfy HWN’s post-closing working capital adjustment obligations, if any, (ii) $75,000 of the purchase price was deposited into escrow to satisfy HWN’s post-closing indemnification obligations, if any, and (iii) $250,000 of the purchase price was deposited into escrow to satisfy performance revenue targets. This amount will be released to HWN if gross revenue of the technology services business unit related to the sold assets between July 1, 2024 and September 30, 2024 is greater than or equal to $3,756,675. If the revenue is below $3,756,675 but at least $3,000,000, 50% of the escrow amount will be released to HWN and 50% will be released to INNO4 LLC. If revenue is below $3,000,000, the full $250,000 will be released to INNO4 LLC.
The Company considered whether or not this transaction would cause the sold assets to qualify for discontinued operations treatment. The Company determined that the sale of the assets qualifies for discontinued operations treatment as of June 30, 2024 due to the size of their operations and because the sale represents a strategic shift (refer to Note 18, Discontinued Operations, for additional detail).
In connection with the sale, the Company recorded a gain on sale of business unit of $7,950,773 to the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024. Additionally, the operations of the assets had net loss and net income of $90,259 and $1,784,730, respectively, during the period of April 1, 2024 through June 27, 2024 and January 1, 2024 through June 27, 2024. These amounts are included within net income (loss) from discontinued operations, net of taxes on the unaudited condensed consolidated statement of operations.
Additionally, the asset purchase agreement includes a non-compete which precludes the Company from operating businesses similar to that of AWS PR and Tropical. As a result, both subsidiaries also now qualify for discontinued operations treatment as of June 30, 2024 (refer to Note 18, Discontinued Operations, for additional detail). The operations of AWS PR and Tropical had net loss and net income of $213 and $4,608, respectively, during the three and six months ended June 30, 2024. These amounts are included within net income (loss) from discontinued operations, net of taxes on the unaudited condensed consolidated statement of operations. |
Property and Equipment |
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| Property and Equipment |
Property and equipment as of June 30, 2024 and December 31, 2023 consisted of the following:
During the six months ended June 30, 2024 and 2023, the Company recorded depreciation expense of $126,292 and $78,718, respectively. |
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Intangible Assets |
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| Intangible Assets |
Intangible assets as of June 30, 2024 and December 31, 2023 consisted of the following:
During the six months ended June 30, 2024 and 2023, the Company recorded amortization expense of $295,569 and $339,749, respectively.
The estimated future amortization expense for the next five years and thereafter is as follows:
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Related Party Transactions |
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| Related Party Transactions |
Loans Payable to Related Parties
As of June 30, 2024 and December 31, 2023, the Company had outstanding the following loans payable to related parties:
Promissory note, Mark Porter, 9% interest, unsecured, matures December 31, 2025
On June 1, 2021, the Company issued a $100,000 promissory note to the Chief Executive Officer of the Company in connection with the 2021 merger transaction. The note was originally due on December 15, 2021 and bears interest at a rate of 9% per annum.
On December 15, 2021, this note matured and was due on demand.
On June 28, 2024, the Company and the holder of the note entered into an amendment whereby outstanding accrued interest was added to the principal balance and the due date of the note was changed to December 31, 2025. The updated principal amount is $136,346. Additionally, the Company is to begin making monthly payments of $3,393 in July 2024.
As June 30, 2024, the Company owed $136,346 pursuant to this agreement.
Convertible promissory note, Mark Porter, 12% interest, unsecured, matures December 31, 2025
On December 6, 2023, the Company issued to Mark Porter an unsecured promissory note in the aggregate principal amount of $165,000. The Company received cash of $150,000 and recorded a debt discount of $15,000. The interest on the outstanding principal due under the note accrues at a rate of 12% per annum. All outstanding principal and accrued interest under the note was due on February 5, 2024.
The note matured on February 5, 2024 and was due on demand.
On June 28, 2024, the Company and the holder of the note entered into an amendment whereby outstanding accrued interest and a penalty of $75,000 was added to the principal balance and the due date of the note was changed to December 31, 2025. The updated principal amount is $253,529. Additionally, the Company is to begin making monthly payments of $6,320 in July 2024.
As of June 30, 2024, the Company owed $253,529 pursuant to this note.
Convertible promissory note, Mark Porter, 18% interest, secured, matures March 25, 2025
In connection with the Securities Purchase Agreement discussed in Note 8, Convertible Debentures, on September 25, 2023, the Company issued to Mark Porter a senior subordinated secured convertible promissory note in the aggregate principal amount of $70,000. The interest on the outstanding principal due under the note accrued at a rate of 18% per annum. All principal and accrued but unpaid interest under the note was due on March 25, 2025. The note was convertible into shares of the Company’s common stock at a fixed conversion price of $0.10 per share.
Additionally, in connection with the note, the Company issued Mark Porter a warrant to purchase 700,000 shares of the Company’s common stock at an exercise price of $0.15 per share. These warrants expire on September 25, 2028.
The warrants, including those issued to the placement agent, had a relative fair value of $31,852, which resulted in a debt discount of $31,852. The amount is also included within additional paid-in capital.
During the six months ended June 30, 2024, the remaining principal balance of $70,000 was paid, along with accrued interest of $9,623. As a result of these payments, the amount owed at June 30, 2024 was $0. The Company recorded a loss on settlement of debt of $15,545 on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024. |
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Loans Payable |
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| Loans Payable |
As of June 30, 2024 and December 31, 2023, the Company had outstanding the following loans payable:
The Company’s loans payable have an effective interest rate range of 0.0% to 144.3%.
Future receivables financing agreement with Cedar Advance LLC, non-interest bearing, matures June 1, 2025
On May 15, 2023, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Cedar Advance LLC. Under the Financing Agreement, the Financing Parties sold to Cedar Advance future receivables in an aggregate amount equal to $1,280,000 for a purchase price of $1,228,800. The Company received cash of $1,228,800 and recorded a debt discount of $51,200.
Pursuant to the terms of the Financing Agreement, the Company agreed to pay Cedar Advance $43,840 each week, including interest, based upon an anticipated 10% of its future receivables until such time as $1,753,600 has been paid, a period Cedar Advance and the Financing Parties estimate to be approximately nine months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.
During the year ended December 31, 2023, the Company paid $633,842 of the original balance under the agreement, along with $374,478 of interest.
During June 2024, the Company and Cedar Advance LLC executed a settlement agreement and release whereby the Company is to pay a total of $375,000 of principal and interest. This resulted in a net reduction of principal totaling $261,154. This amount is included within gain on settlement of debt on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024. Monthly payments of $31,250 are due beginning in July 2024, and the new maturity date is June 1, 2025.
During the six months ended June 30, 2024, the Company paid $48,750 of the original balance under the agreement.
As of June 30, 2024, the Company owed $305,788 pursuant to this agreement and will record accretion equal to the debt discount of $18,949 over the remaining term of the note.
Future receivables financing agreement with Pawn Funding, non-interest bearing, matures June 1, 2025
On May 15, 2023, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Pawn Funding. Under the Financing Agreement, the Financing Parties sold to Pawn Funding future receivables in an aggregate amount equal to $1,280,000 for a purchase price of $1,280,000. The Company received cash of $1,241,600 and recorded a debt discount of $38,400.
Pursuant to the terms of the Financing Agreement, the Company agreed to pay Pawn Funding $43,840 each week, including interest, based upon an anticipated 4% of its future receivables until such time as $1,753,600 has been paid, a period Pawn Funding and the Financing Parties estimate to be approximately nine months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.
During the year ended December 31, 2023, the Company paid $568,874 of the original balance under the agreement, along with $351,765 of interest.
During June 2024, the Company and Pawn Funding executed a settlement agreement whereby the Company is to pay a total of $375,000 of principal and interest. This resulted in a net reduction of principal totaling $251,471. This amount is included within gain on settlement of debt on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024. Monthly payments of $31,250 are due beginning in July 2024, and the new maturity date is June 1, 2025.
During the six months ended June 30, 2024, the Company paid $48,750 of the original balance under the agreement.
As of June 30, 2024, the Company owed $370,755 pursuant to this agreement and will record accretion equal to the debt discount of $14,215 over the remaining term of the note.
Future receivables financing agreement with Slate Advance LLC, non-interest bearing, matures December 1, 2025
On June 9, 2023, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Slate Advance. Under the Financing Agreement, the Financing Parties sold to Slate Advance future receivables in an aggregate amount equal to $1,500,000 for a purchase price of $1,425,000. The Company received cash of $1,425,000 and recorded a debt discount of $75,000.
Pursuant to the terms of the Financing Agreement, the Company agreed to pay Slate Advance $75,000 each week, including interest, based upon an anticipated 25% of its future receivables until such time as $2,100,000 has been paid, a period Slate Advance and the Financing Parties estimate to be approximately seven months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.
During the year ended December 31, 2023, the Company paid $843,121 of the original balance under the agreement, along with $506,879 of interest.
During May 2024, the Company and Slate Advance LLC executed a forbearance and release agreement whereby the Company is to pay a total of $343,000 of principal and interest. This resulted in a net reduction of principal totaling $284,605. This amount is included within gain on settlement of debt on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024. A payment of $50,000 was due in June 2024, with monthly payments of $16,278 due beginning in July 2024, and the new maturity date is December 1, 2025.
During the six months ended June 30, 2024, the Company paid $98,751 of the original balance under the agreement.
As of June 30, 2024, the Company owed $268,789 pursuant to this agreement and will record accretion equal to the debt discount of $22,052 over the remaining term of the note.
Future receivables financing agreement with Meged Funding Group, non-interest bearing, matures July 1, 2025
On July 25, 2023, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Meged Funding Group. Under the Financing Agreement, the Financing Parties sold to Slate Advance future receivables in an aggregate amount equal to $1,200,000 for a purchase price of $1,151,950. The Company received cash of $1,151,950 and recorded a debt discount of $48,050.
Pursuant to the terms of the Financing Agreement, the Company agreed to pay Meged Funding Group $67,200 each week, including interest, based upon an anticipated 25% of its future receivables until such time as $1,680,000 has been paid, a period Meged Funding Group and the Financing Parties estimate to be approximately six months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.
During the year ended December 31, 2023, the Company paid $474,955 of the original balance under the agreement, along with $331,445 of interest.
During June 2024, the Company and Meged Funding Group executed a settlement agreement whereby the Company is to pay a total of $525,000 of principal and interest. This resulted in a net reduction of principal totaling $232,120. This amount is included within gain on settlement of debt on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024. A payment of $45,000 in due in July 2024, with monthly payments of $40,000 due beginning in August 2024, and the new maturity date is July 1, 2025.
During the six months ended June 30, 2024, the Company paid $47,040 of the original balance under the agreement.
As of June 30, 2024, the Company owed $442,700 pursuant to this agreement and will record accretion equal to the debt discount of $21,800 over the remaining term of the note.
Future receivables financing agreement with Arin Funding LLC, non-interest bearing, matures January 12, 2024
On August 25, 2023, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Arin Funding LLC. Under the Financing Agreement, the Financing Parties sold to Arin Funding LLC future receivables in an aggregate amount equal to $200,000 for a purchase price of $195,000. The Company received cash of $195,000 and recorded a debt discount of $5,000.
Pursuant to the terms of the Financing Agreement, the Company agreed to pay Arin Funding LLC $13,000 each week, including interest, based upon an anticipated 5% of its future receivables until such time as $260,000 has been paid, a period Arin Funding LLC and the Financing Parties estimate to be approximately five months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.
During the year ended December 31, 2023, the Company paid $151,259 of the original balance under the agreement, along with $56,741 of interest.
During the six months ended June 30, 2024, the Company paid $48,741 of the original balance under the agreement. As a result of these payments, the amount owed at June 30, 2024 was $0.
Future receivables financing agreement with Arin Funding LLC, non-interest bearing, matures January 23, 2024
On September 5, 2023, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Arin Funding LLC. Under the Financing Agreement, the Financing Parties sold to Arin Funding LLC future receivables in an aggregate amount equal to $300,000 for a purchase price of $290,000. The Company received cash of $290,000 and recorded a debt discount of $10,000.
Pursuant to the terms of the Financing Agreement, the Company agreed to pay Arin Funding LLC $19,500 each week, including interest, based upon an anticipated 8% of its future receivables until such time as $390,000 has been paid, a period Arin Funding LLC and the Financing Parties estimate to be approximately five months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.
During the year ended December 31, 2023, the Company paid $212,992 of the original balance under the agreement, along with $79,508 of interest.
During the six months ended June 30, 2024, the Company paid $87,008 of the original balance under the agreement. As a result of these payments, the amount owed at June 30, 2024 was $0.
Future receivables financing agreements with J.J. Astor & Co., non-interest bearing, matures March 6, 2025
The Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an several bridge loan agreements with J.J. Astor &Co., dated May 9, 2024 (Loan #1), May 16, 2024 (Loan #2), and May 23, 2024 (Loan #3). Under these loan agreements, the Financing Parties issued warrants to J.J. Astor & Co., Warrant #1 dated May 9, 2024 to purchase 2,700,000 shares at an exercise price of $0.056 per share, Warrant #2 dated May 16, 2024 to purchase 5,500,000 shares at an exercise price of $0.04 per share, and Warrant #3 dated May 23, 2024 to purchase 4,060,000 shares at am exercise price of $0.05 per share. The Company received cash of $144,000 for Loan #1, $208,320 for Loan #2, and $180,907 for Loan #3.
Pursuant to the terms of the agreements, the Company agreed to pay J.J. Astor & Co. $5,625.00 each week for Loan #1, $8,348 for Loan #2, and $6,851 for Loan #3, including interest, a period J.J. Astor & Co. and the Financing Parties estimated to be approximately 40 weeks for each loan agreement.
The Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into a Senior Loan Agreement with J.J. Astor & Co., dated May 29, 2024. Under this Senior Loan Agreement, the Financing Parties collectively paid off the three previous short term notes aggregating $813,389 made by J.J. Astor & Co. to the company in May 2024. The Company received net cash of $1,609,593.
Pursuant to the terms of the Senior Loan Agreement, the Company agreed to pay J.J. Astor & Co. $87,750 each week, including interest, a period J.J. Astor & Co. and the Financing Parties estimated to be approximately 40 weeks for the Senior Loan Agreement.
During June 2024, the Company and J.J. Astor & Co. executed a payoff agreement and release whereby the Company was to pay a total of $3,510,000 of principal and interest. This resulted in a reduction of principal (Early Pay Discount) totaling $338,000. The Senior Loan Agreement was settled in full as of June 30, 2024 using proceeds from the sale of HWN’s technology services business unit (refer to Note 3, Recent Subsidiary Activity, for additional detail).
Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand
On June 15, 2021, in connection with the 2021 merger transaction, the Company assumed High Wire’s promissory note issued to InterCloud Systems, Inc. The note was originally issued on February 27, 2018 in the principal amount of $500,000. As of June 15, 2021, $217,400 remained outstanding. The note is non-interest bearing and is due on demand.
As of June 30, 2024, the Company owed $217,400 pursuant to this agreement. |
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Convertible Debentures |
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| Convertible Debentures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Convertible Debentures |
As of June 30, 2024 and December 31, 2023, the Company had outstanding the following convertible debentures:
The Company’s convertible debentures have an effective interest rate range of 41.6% to 51.2%.
Convertible promissory note, Jeffrey Gardner, 18% interest, unsecured, due on demand
On June 15, 2021 the Company issued to Jeffrey Gardner an unsecured convertible promissory note in the aggregate principal amount of $125,000 in connection with the 2021 merger transaction.
The interest on the outstanding principal due under the note accrued at a rate of 6% per annum. All principal and accrued but unpaid interest under the note was originally due on September 15, 2021. The note was convertible into shares of the Company’s common stock at a fixed conversion price of $0.075 per share.
On September 15, 2021, this note matured and was due on demand. Additionally, the interest rate increased to 18% per annum.
During the six months ended June 30, 2024, the remaining principal balance of $125,000 was paid, along with accrued interest of $84,982. As a result of these payments, the amount owed at June 30, 2024 was $0.
Convertible promissory note, James Marsh, 18% interest, unsecured, due on demand
On June 15, 2021 the Company issued to James Marsh an unsecured convertible promissory note in the aggregate principal amount of $125,000 in connection with the 2021 merger transaction.
The interest on the outstanding principal due under the note accrued at a rate of 6% per annum. All principal and accrued but unpaid interest under the note was originally due on September 15, 2021. The note was convertible into shares of the Company’s common stock at a fixed conversion price of $0.075 per share.
On September 15, 2021, this note matured and was due on demand. Additionally, the interest rate increased to 18% per annum.
During the six months ended June 30, 2024, the remaining principal balance of $125,000 was paid, along with accrued interest of $84,982. As a result of these payments, the amount owed at June 30, 2024 was $0.
Convertible promissory note, Roger Ponder, 10% interest, unsecured, matures August 31, 2022
On June 15, 2021, in connection with the 2021 merger transaction, the Company assumed High Wire’s convertible promissory note issued to Roger Ponder. The note was originally issued on August 31, 2020 in the principal amount of $23,894. Interest accrued at 10% per annum. All principal and accrued but unpaid interest under the note were originally due on August 31, 2022. The note was convertible into shares of the Company’s common stock at a fixed conversion price of $0.06 per share, subject to adjustment based on the terms of the note. The embedded conversion option did not qualify for derivative accounting. As a result of the conversion price being fixed at $0.06, the note had a conversion premium of $58,349, and the fair value of the note was $19,000.
On September 30, 2022, the Company and the holder of the note mutually agreed to extend the maturity date to December 31, 2022. The terms of the note were unchanged.
On December 31, 2022, the Company and the holder of the note mutually agreed to extend the maturity date to March 31, 2023. The terms of the note were unchanged.
On March 31, 2023, the Company and the holder of the note mutually agreed to extend the maturity date to June 30, 2023. The terms of the note were unchanged.
On June 30, 2023, the Company and the holder of the note mutually agreed to extend the maturity date to September 30, 2023. The terms of the note were unchanged.
On September 30, 2023, the Company and the holder of the note mutually agreed to extend the maturity date to December 31, 2023. The terms of the note were unchanged.
On December 31, 2023, the Company and the holder of the note mutually agreed to extend the maturity date to March 31, 2024. The terms of the note were unchanged.
On March 31, 2024, the Company and the holder of the note mutually agreed to extend the maturity date to June 30, 2024. The terms of the note were unchanged.
During the six months ended June 30, 2024, the remaining principal balance of $23,894 was paid, along with accrued interest of $11,248. As a result of these payments, the amount owed at June 30, 2024 was $0.
Securities Purchase Agreement – September 2023
On September 25, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company may issue to accredited investors (the “Investors”) 18% Senior Secured Convertible Promissory Notes having an aggregate principal amount of up to $5,000,000 (the “Notes”) and Common Share Purchase Warrants (the “Warrant”) to purchase up to 1,000,000 shares of common stock (“Common Stock”) of the Company per $100,000 of principal amount of the Notes (the “Warrant Shares”).
The Notes mature 18 months after issuance (the “Maturity Date”), bear interest at a rate of 18% per annum and are convertible into Common Stock (the “Conversion Shares” and, together with the Warrant Shares, the “Underlying Shares”), at the Investor’s election at any time after the Maturity Date, at an initial conversion price equal to $0.10, subject to adjustment for certain stock splits, stock combinations and dilutive share issuances. The Company may prepay all, but not less than all, of the then outstanding principal amount of the Notes by paying to the Investor an amount equal to the product of (i) the sum of (a) the outstanding principal amount of the Notes, plus (b) accrued and unpaid interest hereon, plus (c) all other amounts, costs, expenses and liquidated damages due in respect of the Notes, multiplied by (ii) (x) 1.18 if the Company prepays the Notes during the first month following the original issue date and (y) if the Company prepays thereafter, 1.18 minus 0.01 for every month following the closing until the Maturity Date. The Notes contain a number of customary events of default.
The Notes constitute senior secured indebtedness of the Company, subject to a preexisting senior lien, and are guaranteed by all existing or future formed, direct and indirect, domestic subsidiaries of the Company (the “Guarantors”) pursuant to a subsidiary guarantee (the “Subsidiary Guarantee”) with the collateral agent for the Investor (the “Agent”). On September 25, 2023, the Company, the Investor, the Guarantors and the Agent also entered into a security agreement (the “Security Agreement”) pursuant to which the Notes are secured by a lien in, and security interest upon, and a right of set-off against all of its right, title and interest of whatsoever kind and nature in and to, all assets of the Company and the Guarantors, subject to customary and mutually agreed permitted liens.
The Warrant is exercisable at an initial exercise price of $0.15 per share for a term ending on the 5-year anniversary of the date of issuance. The exercise price of the Warrant is subject to adjustment for certain stock splits, stock combinations and dilutive share issuances.
As of June 30, 2024, the Company had issued an aggregate of $1,220,000 of principal and an aggregate of 12,200,000 warrants to debt holders in connection with the Purchase Agreement.
Additionally, the placement agent for the Purchase agreement receives 7% cash and 7% warrant compensation on amounts closed on pursuant to the agreement. As of June 30, 2024, the placement agent had received an aggregate of 854,000 warrants.
For information on the debt issued under the agreement, refer to the “Convertible promissory note, Herald Investment Management Limited, 18% interest, secured, matures March 25, 2025” and “Convertible promissory note, Kings Wharf Opportunities Fund, LP, 18% interest, secured, matures March 25, 2025” sections of this note, along with the “Convertible promissory note, Mark Porter, 18% interest, secured, matures March 25, 2025” section of Note 6, Loans Payable to Related Parties.
Convertible promissory note, Herald Investment Management Limited, 18% interest, secured, matures March 25, 2025
On September 25, 2023, the Company issued to Herald Investment Management Limited a senior subordinated secured convertible promissory note in the aggregate principal amount of $700,000. The Company received cash of $669,687 and recorded a debt discount of $30,313. The interest on the outstanding principal due under the note accrues at a rate of 18% per annum. All principal and accrued but unpaid interest under the note are due on March 25, 2025. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.10 per share.
Additionally, in connection with the note, the Company issued Herald Investment Management Limited a warrant to purchase 7,000,000 shares of the Company’s common stock at an exercise price of $0.15 per share. These warrants expire on September 25, 2028.
The warrants, including those issued to the placement agent, had a relative fair value of $318,523, which resulted in an additional debt discount of $318,523. The amount is also included within additional paid-in capital.
As of June 30, 2024, the Company owed $700,000 pursuant to this note and will record accretion equal to the debt discount of $159,659 over the remaining term of the note.
Convertible promissory note, Kings Wharf Opportunities Fund, LP, 18% interest, secured, matures March 25, 2025
On September 25, 2023, the Company issued to Kings Wharf Opportunities Fund, LP a senior subordinated secured convertible promissory note in the aggregate principal amount of $450,000. The Company received cash of $430,513 and recorded a debt discount of $19,487. The interest on the outstanding principal due under the note accrued at a rate of 18% per annum. All principal and accrued but unpaid interest under the note were due on March 25, 2025. The note was convertible into shares of the Company’s common stock at a fixed conversion price of $0.10 per share.
Additionally, in connection with the note, the Company issued Kings Wharf Opportunities Fund, LP a warrant to purchase 4,500,000 shares of the Company’s common stock at an exercise price of $0.15 per share. These warrants expire on September 25, 2028.
The warrants, including those issued to the placement agent, had a relative fair value of $204,765 which resulted in an additional debt discount of $204,765. The amount is also included within additional paid-in capital.
During the six months ended June 30, 2024, the remaining principal balance of $450,000 was paid, along with accrued interest of $1,110. As a result of these payments, the amount owed at June 30, 2024 was $0. The Company recorded a loss on settlement of debt of $109,462 on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024.
Securities Purchase Agreement – December 2023
On December 7, 2023, the Company entered into a securities purchase agreement pursuant to which the Company may issue to accredited investors (the “Investors”) 12% senior promissory notes having an aggregate principal amount of up to $2,250,000, up to 4,780,000 shares of common stock as a commitment fee (the “commitment shares”), common share purchase warrants for the purchase of up to 5,400,000 shares of common stock at an initial price per share of $0.125 (the “First Warrants”), as well as common share purchase warrants for the purchase of up to 37,500,000 shares of common stock at an initial price per share of $0.001 (the “Second Warrants”).
The notes have a term of one year from the date of issuance. The First Warrants have a term of five years from the date of issuance. The Second Warrants have a term of five years from the date of a triggering event as defined in the terms of the agreement.
As of June 30, 2024, the Company had issued an aggregate of $1,016,667 of principal, an aggregate of 2,159,850 commitment shares, an aggregate of 2,439,999 First Warrants, and an aggregate of 16,944,443 Second Warrants to debt holders in connection with the agreement.
For information on the debt issued under the agreement, refer to the “Convertible promissory note, Mast Hill Fund, L.P., 12% interest, unsecured, matures December 7, 2024”, and “Convertible promissory note, FirstFire Global Opportunities Fund, LLC, 12% interest, unsecured, matures December 11, 2024”, and “Convertible promissory note, Mast Hill Fund, L.P., 12% interest, unsecured, matures January 11, 2025” sections of this note.
In connection with the issuances of debt discussed below, the Company issued 321,990 First Warrants to a broker.
Convertible promissory note, Mast Hill Fund, L.P., 12% interest, unsecured, matures December 7, 2024
On December 7, 2023, the Company issued to Mast Hill Fund, L.P. a senior convertible promissory note in the aggregate principal amount of $444,445. The Company received cash of $357,000, net of legal fees of $43,000, which resulted in an original issue discount of $44,445. The interest on the outstanding principal due under the note accrued at a rate of 12% per annum. Under the terms of the agreement the Company was to begin paying accrued interest on March 7, 2024 and principal on June 7, 2024, with all remaining amounts under the note due on December 7, 2024. The note was convertible into shares of the Company’s common stock at a fixed conversion price of $0.10 per share.
Additionally, in connection with the note, the Company issued Mast Hill Fund, L.P. 944,197 commitment shares, 1,066,666 First Warrants with an exercise price of $0.125 which expire on December 7, 2028, and 7,407,407 Second Warrants with an exercise price of $0.001 which expire five years from the date of a triggering event as defined in the terms of the agreement.
On December 7, 2023, the Company issued 944,197 commitment shares to Mast Hill Fund, L.P. The shares had a fair value of $80,713, which resulted in an additional debt discount of $80,713.
The warrants qualified for warrant liability accounting under ASC 480 “Distinguishing Liabilities from Equity”. The initial fair value of the warrants was $609,116, which resulted in an additional debt discount of $319,287 and warrant expense of $332,819, which was recorded on the consolidated statement of operations for the year ended December 31, 2023.
A total of $80,703 was recorded to additional paid-in capital in connection with the issuance of debt and warrants.
On January 1, 2024, $66,667 was added to the principal balance of the note as the Company had not yet filed its Quarterly Report on Form 10-Q for the quarter ended September 30, 2023. This amount was recorded as a penalty fee on the unaudited condensed consolidated statement of operations for the six months ended June 30, 2024.
During the six months ended June 30, 2024, the remaining principal balance of $511,111 was paid, along with accrued interest of $38,831. As a result of these payments, the amount owed at June 30, 2024 was $0. The Company recorded a loss on settlement of debt of $136,267 on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024. Additionally, in connection with the payoff, the Second Warrants were canceled and extinguished in accordance with the terms of the warrants. This resulted in a gain on extinguishment of warrants liabilities of $402,807 which is included in the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024.
Convertible promissory note, FirstFire Global Opportunities Fund, LLC, 12% interest, unsecured, matures December 11, 2024
On December 11, 2023, the Company issued to FirstFire Global Opportunities Fund, LLC a senior convertible promissory note in the aggregate principal amount of $222,222. The Company received cash of $178,500, net of legal fees of $21,500, which resulted in an original issue discount of $22,222. The interest on the outstanding principal due under the note accrued at a rate of 12% per annum. Under the terms of the agreement the Company was to begin paying accrued interest on March 11, 2024 and principal on June 11, 2024, with all remaining amounts under the note due on December 11, 2024. The note was convertible into shares of the Company’s common stock at a fixed conversion price of $0.10 per share.
Additionally, in connection with the note, the Company issued FirstFire Global Opportunities Fund, LLC 472,098 commitment shares, 533,333 First Warrants with an exercise price of $0.125 which expire on December 11, 2028, and 3,703,703 Second Warrants with an exercise price of $0.001 which expire five years from the date of a triggering event as defined in the terms of the agreement.
On December 11, 2023, the Company issued 472,098 commitment shares to FirstFire Global Opportunities Fund, LLC. The shares had a fair value of $38,540, which resulted in an additional debt discount of $38,540.
The warrants qualified for warrant liability accounting under ASC 480 “Distinguishing Liabilities from Equity”. The initial fair value of the warrants was $291,964, which resulted in an additional debt discount of $161,460 and warrant expense of $151,999, which was recorded on the consolidated statement of operations for the year ended December 31, 2023.
A total of $38,535 was recorded to additional paid-in capital in connection with the issuance of debt and warrants.
On January 1, 2024, $33,333 was added to the principal balance of the note as the Company had not yet filed its Quarterly Report on Form 10-Q for the quarter ended September 30, 2023. This amount was recorded as a penalty fee on the unaudited condensed consolidated statement of operations for the six months ended June 30, 2024.
During the six months ended June 30, 2024, the remaining principal balance of $255,555 was paid, along with accrued interest of $21,350. As a result of these payments, the amount owed at June 30, 2024 was $0. The Company recorded a loss on settlement of debt of $69,042 on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024. Additionally, in connection with the payoff, the Second Warrants were canceled and extinguished in accordance with the terms of the warrants. This resulted in a gain on extinguishment of warrants liabilities of $201,404 which is included in the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024.
Convertible promissory note, Mast Hill Fund, L.P., 12% interest, unsecured, matures January 11, 2025
On January 11, 2024, the Company issued to Mast Hill Fund, L.P. a senior convertible promissory note in the aggregate principal amount of $350,000. The Company received cash of $281,150, net of legal fees of $33,850, resulting in an original issue discount of $35,000. The interest on the outstanding principal due under the note accrued at a rate of 12% per annum. Under the terms of the agreement the Company was to begin paying accrued interest on April 11, 2024 and principal on July 11, 2024, with all remaining amounts under the note due on January 11, 2025. The note was convertible into shares of the Company’s common stock at a fixed conversion price of $0.10 per share.
Additionally, in connection with the note, the Company issued Mast Hill Fund, L.P. 743,555 commitment shares, 840,000 First Warrants with an exercise price of $0.125 which expire on January 11, 2029, and 5,833,333 Second Warrants with an exercise price of $0.001 which expire five years from the date of a triggering event as defined in the terms of the agreement.
On January 11, 2024, the Company issued 743,555 commitment shares to Mast Hill Fund, L.P. The shares had a fair value of $56,286.
The warrants qualified for warrant liability accounting under ASC 480 “Distinguishing Liabilities from Equity”. The initial fair value of the warrants was $439,600, which resulted in an additional debt discount of $182,782 and warrant expense of $256,818, which was recorded on the unaudited condensed consolidated statement of operations for the six months ended June 30, 2024.
A total of $56,279 was recorded to additional paid-in capital in connection with the issuance of debt and warrants.
During the six months ended June 30, 2024, the remaining principal balance of $350,000 was paid, along with accrued interest of $25,434. As a result of these payments, the amount owed at June 30, 2024 was $0. The Company recorded a loss on settlement of debt of $145,360 on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024. Additionally, in connection with the payoff, the Second Warrants were canceled and extinguished in accordance with the terms of the warrants. This resulted in a gain on extinguishment of warrants liabilities of $317,211 which is included in the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024.
Convertible promissory note, 1800 Diagonal Lending LLC, 12% interest, unsecured, matures November 15, 2024
On January 24, 2024, the Company issued to 1800 Diagonal Lending LLC an unsecured convertible promissory note in the aggregate principal amount of $178,250. The Company received cash of $150,000, net of legal fees of $5,000, resulting in an original issue discount of $23,250. A one-time interest charge of 12%, or $21,390, was applied on the issuance date. The principal and accrued interest is to be paid in nine equal payments beginning on March 15, 2024, with the final principal and accrued interest payment due on November 15, 2024. In the event of a default, the note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.07 per share.
During the six months ended June 30, 2024, the Company paid $78,843 of the original balance under the agreement.
As of June 30, 2024, the Company owed $99,407 pursuant to this note and will record accretion equal to the debt discount of $5,264 over the remaining term of the note. |
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Factor Financing |
6 Months Ended | ||
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Jun. 30, 2024 | |||
| Factor Financing [Abstract] | |||
| Factor Financing |
On February 22, 2023, ADEX, a former subsidiary of the Company, entered into an amendment to its factor financing agreement, pursuant to which ADEX agreed to sell and assign and Bay View Funding agreed to buy and accept, certain accounts receivable owing to ADEX. The amendment amended the agreement to include the Company’s HWN and SVC subsidiaries. Under the terms of the Amendment, upon the receipt and acceptance of each assignment of accounts receivable, Bay View Funding will pay ADEX, HWN and SVC, individually and together, ninety percent (90%) of the face value of the assigned accounts receivable, up to maximum total borrowings of $9,000,000 outstanding at any point in time. ADEX, HWN and SVC additionally granted Bay View Funding a continuing security interest in, and lien upon, all accounts receivable, inventory, fixed assets, general intangibles, and other assets.
Under the factoring agreement, HWN and SVC may borrow up to the lesser of $4,000,000 or an amount equal to the sum of all undisputed purchased receivables multiplied by the advance percentage, less any funds in reserve. HWN and SVC will pay to Bay View Funding a factoring fee upon purchase of receivables by Bay View Funding equal to 0.45% of the gross face value of the purchased receivable for the first 30 day period from the date said purchased receivable is first purchased by Bay View Funding, and a factoring fee of 0.25% per 15 days thereafter until the date said purchased receivable is paid in full or otherwise repurchased by HWN and SVC or otherwise written off by Bay View Funding within the write off period. HWN and SVC will also pay a finance fee to Bay View Funding on the outstanding advances under the agreement at a floating rate per annum equal to the Prime Rate plus 1.75%. The finance rate will increase or decrease monthly, on the first day of each month, by the amount of any increase or decrease in the Prime Rate, but at no time will the finance fee be less than 9.25%.
On March 6, 2023, in connection with the divestiture of the ADEX Entities, the amounts owed and related to ADEX accounts receivable were assumed by the buyer.
During the six months ended June 30, 2024, the Company paid $257,578 in factoring fees. These amounts are included within general and administrative expenses on the unaudited condensed consolidated statement of operations.
During the six months ended June 30, 2024, the Company received an aggregate of $6,673,090 and repaid an aggregate of $8,034,746.
The Company owed under the agreement as of June 30, 2024 and the Company will receive no further amounts from Bay View Funding. |
Warrant Liabilities |
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| Warrant Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrant Liabilities |
Certain of the warrants related to the convertible debentures described in Note 8, Convertible Debentures, qualify for liability classification under ASC 480, “Distinguishing Liabilities from Equity”. The fair value of the warrant liabilities was measured upon issuance and is re-measured at the end of every reporting period, with the change in fair value reported in the consolidated statement of operations as a gain or loss on change in fair value of warrant liabilities.
During the six months ended June 30, 2024, in connection with the related notes being paid off in full, the Second Warrants were canceled and extinguished, resulting in a gain on extinguishment of warrant liabilities of $921,422 on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 warrant liabilities for the six months ended June 30, 2024:
The Company uses Level 3 inputs for its valuation methodology for the warrant liabilities as their fair values were determined by using either the Black-Scholes model based on various assumptions or the price of the Company’s common stock.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
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Common Stock |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2024 | |||
| Common Stock [Abstract] | |||
| Common Stock |
Authorized shares
The Company has 1,000,000,000 common shares authorized with a par value of $0.00001. |
Preferred Stock |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2024 | |||
| Preferred Stock [Abstract] | |||
| Preferred Stock |
See below for a description of each of the Company’s outstanding classes of preferred stock, including historical and current information.
Series B
On April 16, 2018, High Wire designated 1,000 shares of Series B preferred stock with a stated value of $3,500 per share. The Series B preferred stock is neither redeemable nor convertible into common stock. The principal terms of the Series B preferred stock shares are as follows:
Issue Price — The stated price for the Series B preferred stock shares shall be $3,500 per share.
Redemption — The Series B preferred stock shares are not redeemable.
Dividends — The holders of the Series B preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation — The Corporation’s Series A preferred stock (the “Senior Preferred Stock) shall have a liquidation preference senior to the Series B preferred stock. Upon any fundamental transaction, liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the shares of the Series B preferred stock shares shall be entitled, after any distribution or payment is made upon any shares of capital stock of the Company having a liquidation preference senior to the Series B preferred stock shares, including the Senior Preferred Stock, but before any distribution or payment is made upon any shares of common stock or other capital stock of the Company having a liquidation preference junior to the Series B preferred stock shares, to be paid in cash the sum of $3,500 per share. If upon such liquidation, dissolution or winding up, the assets to be distributed among the Series B preferred stock holders and all other shares of capital stock of the Company having the same liquidation preference as the Series B preferred stock shall be insufficient to permit payment to said holders of such amounts, then all of the assets of the Company then remaining shall be distributed ratably among the Series B preferred stock holders and such other capital stock of the Company having the same liquidation preference as the Series B preferred stock, if any. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, after provision is made for Series B preferred stock holders and all other shares of capital stock of the Company having the same liquidation preference as the Series B preferred stock, if any, then-outstanding as provided above, the holders of common stock and other capital stock of the Company having a liquidation preference junior to the Series B preferred stock shall be entitled to receive ratably all remaining assets of the Company to be distributed.
Voting — The holders of shares of Series B preferred stock shall be voted together with the shares of common stock such that the aggregate voting power of the Series B preferred stock is equal to 51% of the total voting power of the Company.
Conversion — There are no conversion rights.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series B preferred stock shares as temporary equity or “mezzanine.”
Series D
On June 14, 2021, High Wire designated 1,590 shares of Series D preferred stock with a stated value of $10,000 per share. The Series D preferred stock is not redeemable.
On December 13, 2021, the Company made the first amendment to the Certificate of Designation of its Series D preferred stock which changed the conversion right. As a result of this amendment, the Company recorded a deemed dividend of $5,852,000 for the year ended December 31, 2021 in accordance with ASC 260-10-599-2.
Subsequent to the first amendment, the principal terms of the Series D preferred stock shares are as follows:
Issue Price — The stated price for the Series D preferred stock shares shall be $10,000 per share.
Redemption — The Series D preferred stock shares are not redeemable.
Dividends — The holders of the Series D preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation — Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to $10,000 for each share of Series D before any distribution or payment shall be made to the holders of any other securities of the Corporation and (ii) then be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that a holder of Common Stock would receive if the Series D were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock which amounts shall be paid pari passu with all holders of Common Stock. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.
Voting — Except as otherwise provided in the agreement or as required by law, the Series D shall be voted together with the shares of common stock, par value $0.00001 per share of the Corporation (“Common Stock”), and any other series of preferred stock then outstanding that have voting rights, and except as provided in Section 7, not as a separate class, at any annual or special meeting of stockholders of the Corporation, with respect to any question or matter upon which the holders of Common Stock have the right to vote, such that the voting power of each share of Series D is equal to the voting power of the shares of Common Stock that each such share of Series D would be convertible into pursuant to Section 6 if the Series D Conversion Date was the date of the vote. The Series D shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation and may act by written consent in the same manner as the holders of Common Stock of the Corporation.
Conversion — Beginning ninety (90) days from the date of issuance, all or a portion of the Series D may be converted into Common Stock at the greater of the Fixed Price and the Average Price (as defined below). On the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic Series D Conversion Date”), without any further action, all shares of Series D shall automatically convert into shares of Common Stock at the Fixed Price, which is defined as the closing price of the Common Stock on the trading day immediately preceding the date of issuance of the Series D ( subject to adjustment for any reverse or forward split of the Common Stock). The Series D shares were issued on June 16, 2021, and the closing price of the Company’s common stock was $0.225 on June 15, 2021. The Average Price is defined as the average closing price of the Company’s common stock for the 10 trading days immediately preceding, but not including, the conversion date.
Vote to Change the Terms of or Issuance of Series D — The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting, of the holders of not less than fifty-one (51%) of the then outstanding shares of Series D shall be required for any change to the Certificate of Designation, Preferences, Rights and Other Rights of the Series D.
As of June 30, 2024, the carrying value of the Series D Preferred Stock was $7,745,643. This amount is recorded within equity on the unaudited condensed consolidated balance sheet.
Series E
On December 20, 2021, the Company designated 650 shares of Series E preferred stock with a stated value of $10,000 per share. The Series E preferred stock is not redeemable.
The principal terms of the Series E preferred stock shares are as follows:
Issue Price — The stated price for the Series E preferred stock shares shall be $10,000 per share.
Redemption — The Series E preferred stock shares are not redeemable.
Dividends — The holders of the Series E preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation — Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to $10,000 for each share of Series E before any distribution or payment shall be made to the holders of any other securities of the Corporation and (ii) then be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that a holder of Common Stock would receive if the Series E were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock which amounts shall be paid pari passu with all holders of Common Stock. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.
Voting — Except as otherwise provided herein or as required by law, the Series E shall be voted together with the shares of common stock, par value $0.00001 per share of the Corporation (“Common Stock”), and any other series of preferred stock then outstanding that have voting rights, and except as provided in Section 7, below, not as a separate class, at any annual or special meeting of stockholders of the Corporation, with respect to any question or matter upon which the holders of Common Stock have the right to vote, such that the voting power of each share of Series E is equal to the voting power of the shares of Common Stock that each such share of Series E would be convertible into pursuant to Section 6 if the Series E Conversion Date was the date of the vote. The Series E shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation and may act by written consent in the same manner as the holders of Common Stock of the Corporation.
Conversion — Beginning ninety (90) days from the date of issuance, all or a portion of the Series E may be converted into Common Stock at the Fixed Price (as defined below). On the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic Series E Conversion Date”), without any further action, all shares of Series E shall automatically convert into shares of Common Stock at the Fixed Price. “Fixed Price” shall be defined as the closing price of the Common Stock on the trading day immediately preceding the date of issuance of the Series E (subject to adjustment for any reverse or forward split of the Common Stock or similar occurrence). The Series E shares were issued on December 30, 2021, and the closing price of the Company’s common stock was $0.23075 on December 29, 2021.
Vote to Change the Terms of or Issuance of Series E — The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting, of the holders of not less than fifty-one (51%) of the then outstanding shares of Series E shall be required for any change to the Certificate of Designation, Preferences, Rights and Other Rights of the Series E.
As of June 30, 2024, the carrying value of the Series E Preferred Stock was $4,869,434. This amount is recorded within equity on the consolidated balance sheet. |
Share Purchase Warrants and Stock Options |
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| Share Purchase Warrants and Stock Options [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share Purchase Warrants and Stock Options |
In connection with the issuance of new convertible debentures during December 2023 and January 2024, the associated warrants qualified for liability classification. The fair value of these warrants was $122,000 and $833,615 as of June 30, 2024 and December 31, 2023, respectively. This amount is included in warrant liabilities on the unaudited condensed consolidated balance sheet. The weighted-average remaining life on the share purchase warrants as of June 30, 2024 was 2.7 years. The weighted-average remaining life on the stock options as of June 30, 2024 was 4.3 years. With the exception of those issued during February 2021 and June 2021, the stock options outstanding at June 30, 2024 were subject to vesting terms.
During June 2024, current employees of the Company with outstanding underwater stock options were given the option of returning the existing options in exchange for new options with an exercise price based on the closing price on the date of the election. The exchanged options were considered canceled. The effective date of the election was June 21, 2024.
The following table summarizes the activity of share purchase warrants for the period of January 1, 2024 through June 30, 2024:
As of June 30, 2024, the following share purchase warrants were outstanding:
The following table summarizes the activity of stock options for the period of January 1, 2024 through June 30, 2024:
As of June 30, 2024, the following stock options were outstanding:
The remaining stock-based compensation expense on unvested stock options was $248,547 as of June 30, 2024. |
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Leases |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases |
The Company leases certain office space and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term. The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities.
The following table sets forth the operating lease right of use (“ROU”) assets and liabilities as of June 30, 2024 and December 31, 2023:
Expense related to leases is recorded on a straight-line basis over the lease term, including rent holidays. During the six months ended June 30, 2024 and 2023, the Company recognized operating lease expense of $57,334 and $66,921, respectively. Operating lease costs are included within general and administrative expenses on the unaudited condensed consolidated statements of operations. During the six months ended June 30, 2024 and 2023, short-term lease costs were $0 and $31,754, respectively.
Cash paid for amounts included in the measurement of operating lease liabilities were $54,561 and $64,722, respectively, for the six months ended June 30, 2024 and 2023. These amounts are included in operating activities in the unaudited condensed consolidated statements of cash flows. During the six months ended June 30, 2024 and 2023, the Company reduced its operating lease liabilities by $48,459 and $67,021, respectively, for cash paid.
The operating lease liabilities as of June 30, 2024 reflect a weighted average discount rate of 5%. The weighted average remaining term of the leases is 2.1 years. Remaining lease payments as of June 30, 2024 are as follows:
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Commitments and Contingencies |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2024 | |||
| Commitments and Contingencies [Abstract] | |||
| Commitments and Contingencies |
Leases
The Company leases its principal offices under a lease that expires in 2026. Leases with an initial term of 12 months or less and immaterial leases are not recorded on the balance sheet (refer to Note 14, Leases, for amounts expensed during the six months ended June 30, 2024 and 2023).
Legal proceedings
In the normal course of business or otherwise, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred. |
Segment Disclosures |
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| Segment Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Disclosures |
During the six months ended June 30, 2024 and 2023, the Company had three operating segments including:
Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria. The Company operates all reporting segments in one geographical area (the United States).
Financial statement information by operating segment for the three and six months ended June 30, 2024 is presented below:
Financial statement information by operating segment for the three and six months ended June 30, 2023 is presented below:
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Earnings Per Share |
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| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share |
The following table shows the computation of basic and diluted earnings per share for the three and six months ended June 30, 2024 and 2023:
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Discontinued Operations |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations |
On March 6, 2023, HWN divested the ADEX Entities. The divestiture of the ADEX Entities qualified for discontinued operations treatment.
The results of operations of the ADEX Entities have been included within net income (loss) from discontinued operations, net of tax, on the unaudited condensed consolidated statements of operations for the six months ended June 30, 2023.
On June 27, 2024, HWN sold the assets of its technology services business unit. The operations of the sold business unit qualified for discontinued operations treatment.
The assets and liabilities of the sold business unit as of December 31, 2023 have been included within the unaudited condensed consolidated balance sheet as current assets of discontinued operations and current liabilities of discontinued operations.
The results of operations of the sold business unit have been included within net income (loss) from discontinued operations, net of tax, on the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023.
In connection with the sale of HWN’s technology services business unit, the Company is now subject to a non-compete which precludes it from operating businesses similar to that of AWS PR and Tropical. As a result, both subsidiaries qualify for discontinued operations treatment.
The assets and liabilities of AWS PR and Tropical as of June 30, 2024 and December 31, 2023 have been included within the unaudited condensed consolidated balance sheet as current assets of discontinued operations and current liabilities of discontinued operations.
The results of operations of AWS PR and Tropical have been included within net income (loss) from discontinued operations, net of tax, on the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023.
The following table shows the balance of the Company’s discontinued operations as of June 30, 2024 and December 31, 2023:
The following table shows the statement of operations for the Company’s discontinued operations for the three and six months ended June 30, 2024 and 2023:
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Pay vs Performance Disclosure - USD ($) |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 30, 2024 |
Mar. 31, 2024 |
Jun. 30, 2023 |
Mar. 31, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
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| Pay vs Performance Disclosure | ||||||
| Net Income (Loss) | $ 4,785,325 | $ (414,438) | $ (4,141,995) | $ 168,309 | $ 4,370,887 | $ (3,973,686) |
Insider Trading Arrangements |
3 Months Ended |
|---|---|
Jun. 30, 2024 | |
| Trading Arrangements, by Individual | |
| Rule 10b5-1 Arrangement Adopted | false |
| Non-Rule 10b5-1 Arrangement Adopted | false |
| Rule 10b5-1 Arrangement Terminated | false |
| Non-Rule 10b5-1 Arrangement Terminated | false |
Accounting Policies, by Policy (Policies) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Condensed Financial Statements | Condensed Financial Statements In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position and the results of its operations and its cash flows for the periods shown. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be expected for the full year. |
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| Basis of Presentation/Principles of Consolidation | Basis of Presentation/Principles of Consolidation These unaudited condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These unaudited condensed consolidated financial statements include the accounts of the Company as well as High Wire and its subsidiaries, SVC and OCL. All subsidiaries are wholly-owned. All inter-company balances and transactions have been eliminated. |
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| Use of Estimates | Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. |
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| Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. |
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| Accounts Receivable | Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for services performed but not billed. Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, and changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance for doubtful accounts at June 30, 2024 and December 31, 2023 was $71,647 and $81,359, respectively.
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| Property and Equipment | Property and Equipment Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:
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| Goodwill | Goodwill The Company has two reporting units, HWN and SVC, and tests its goodwill for impairment at least annually on December 31 and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results. The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were impairment charges during the three and six months ended June 30, 2024 and 2023. In connection with the sale of HWN’s technology services business unit discussed in Note 3, Recent Subsidiary Activity, the Company assigned $1,349,681 of HWN’s goodwill to the sold assets. This amount was based on relative fair values in accordance with ASC 350-20-40 and is included in the gain on sale of business unit within net income (loss) from discontinued operations, net of tax on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024. |
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| Intangible Assets | Intangible Assets At June 30, 2024 and December 31, 2023, definite-lived intangible assets consisted of tradenames and customer relationships which are being amortized over their estimated useful lives of 10 years. The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value. There were impairment charges during the three and six months ended June 30, 2024 and 2023. The sale of HWN’s technology services business unit discussed in Note 3, Recent Subsidiary Activity included all of HWN’s remaining intangible assets. The net book value at the time of the sale of $121,826 is included in the gain on sale of business unit within net income (loss) from discontinued operations, net of tax on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2024. |
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| Long-lived Assets | Long-lived Assets In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. There were impairment charges during the three and six months ended June 30, 2024 and 2023.
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| Income Taxes | Income Taxes The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. The Company conducts business, and files federal and state income, franchise or net worth, tax returns in United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2020 to 2023. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of the U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above. Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income. The Company follows the guidance set forth within ASC 740, “Income Taxes” which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense. Prior to 2021, the Company had elected to be treated as a Subchapter S Corporation for income tax purposes, and as such recognized no income tax liability or benefit. |
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| Revenue Recognition | Revenue Recognition The Company recognizes revenue based on the five criteria for revenue recognition established under ASC 606, “Revenue from Contracts with Customers”: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied. Contract Types The Company’s contracts fall under two main types: 1) fixed-price and 2) time-and-materials. Fixed-price contracts are based on purchase order line items that are billed on individual invoices as the project progresses and milestones are reached. Time-and-materials contracts include employees working on an as needed basis at customer locations and materials costs incurred by those employees. A significant portion of the Company’s revenues come from customers with whom the Company has a master service agreement (“MSA”). These MSA’s generally contain customer specific service requirements. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue service types, the performance obligation is satisfied at different times. For professional services revenue, the performance obligation is met when the work is performed. In certain cases, this may be each day or each week, depending on the customer. For construction services, the performance obligation is met when the work is completed and the customer has approved the work.
Revenue Service Types The following is a description of the Company’s revenue service types:
Disaggregation of Revenues The Company disaggregates its revenue by operating segment (refer to Note 16, Segment Disclosures, for additional information). Contract Assets and Liabilities Contract assets would include costs and services incurred on contracts with open performance obligations. These amounts would be included in contract assets on the unaudited condensed consolidated balance sheets. At June 30, 2024 and December 31, 2023, the Company did not have any contract assets. Contract liabilities include payment received for incomplete performance obligations and are included in contract liabilities on the unaudited condensed consolidated balance sheets. At June 30, 2024 and December 31, 2023, contract liabilities totaled $364,930 and $80,819, respectively. |
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| Cost of Revenues | Cost of Revenues Cost of revenues includes all direct costs of providing services under the Company’s contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment, direct materials, insurance claims and other direct costs. |
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| Research and Development Costs | Research and Development Costs Research and development costs are expensed as incurred. |
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| Stock-based Compensation | Stock-based Compensation The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the grant date fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718, at either the grant date fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in Accounting Standards Update (“ASU”) 2018-07. In accordance with ASU 2016-09, the Company accounts for forfeitures as they occur. The Company uses certain pricing models to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period, which is generally the vesting period.
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| Income (Loss) per Share | Income (Loss) per Share The Company computes income (loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the conversion of convertible debentures or preferred stock and the exercise of stock options or warrants. Diluted EPS excludes dilutive potential shares if their effect is anti-dilutive. As of June 30, 2024 and December 31, 2023, respectively, the Company had 134,373,675 and 145,710,627 common stock equivalents outstanding. As of June 30, 2024, 31,431,129 of the common stock equivalents were dilutive. |
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| Leases | Leases ASC 842, “Leases” requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Certain of the Company’s lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised. The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months as of January 1, 2019. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, unamortized lease incentives provided by lessors, and restructuring liabilities, Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur. The Company has elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities. |
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| Going Concern Assessment | Going Concern Assessment Management assesses going concern uncertainty in the Company’s unaudited condensed consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the unaudited condensed consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period. The Company generated operating losses in the three and six months ended June 30, 2024 and 2023, and High Wire has historically generated operating losses since its inception and has relied on cash on hand, sales of securities, external bank lines of credit, and issuance of third-party and related party debt to support cash flow from operations. As of and for the six months ended June 30, 2024, the Company had an operating loss of $4,531,039, cash flows used in continuing operations of $5,003,076, and a working capital deficit of $3,185,829. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these unaudited condensed consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business. Management believes that based on relevant conditions and events that are known and reasonably knowable, its forecasts of operations for one year from the date of the filing of the unaudited condensed consolidated financial statements in the Company’s Quarterly Report on Form 10-Q indicate improved operations and the Company’s ability to continue operations as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months. |
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements In November 2023, the Financial Standards Accounting Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company’s annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures. In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topics 740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures. Any other new accounting pronouncements recently issued, but not yet effective, have been reviewed and determined to be not applicable or were related to technical amendments or codification. As a result, the adoption of such new accounting pronouncements, when effective, is not expected to have a material effect on the Company’s financial position or results of operations. |
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| Concentrations of Credit Risk | Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk. As of June 30, 2024, HWN had a cash balance in excess of provided insurance of $3,793,332. The Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the six months ended June 30, 2024 and 2023, no customers accounted for 10% or more of consolidated revenues or 10% or more of consolidated accounts receivable for either period.
The Company’s customers are all located within the domestic United States of America |
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| Fair Value Measurements | Fair Value Measurements The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows: Level 1 – quoted prices for identical instruments in active markets; Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Warrant liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the six months ended June 30, 2024 and 2023. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations. The Company’s financial assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2024 and December 31, 2023 consisted of the following:
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Refer to Note 10, Warrant Liabilities, for additional information.
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| Warrant Liabilities | Warrant Liabilities The Company accounts for its liability-classified warrants in accordance with ASC 480, “Distinguishing Liabilities from Equity” and all warrant liabilities are reflected as liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its warrant liabilities. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of June 30, 2024 and December 31, 2023, respectively, the Company had warrant liabilities of $122,000 and $833,615. |
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| Sequencing Policy | Sequencing Policy Under ASC 815-40-35, the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy. |
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Significant Accounting Policies (Tables) |
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Property and Equipment Estimated Useful Lives | The Company depreciates the cost of property and equipment over their estimated useful lives at the
following annual rates:
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| Schedule of Financial Assets and Liabilities Carried at Fair Value Measured on a Recurring Basis | The Company’s financial
assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2024 and December 31, 2023 consisted of the
following:
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Property and Equipment (Tables) |
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Property and Equipment | Property and equipment as
of June 30, 2024 and December 31, 2023 consisted of the following:
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Intangible Assets (Tables) |
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Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Intangible Assets | Intangible assets as of June
30, 2024 and December 31, 2023 consisted of the following:
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| Schedule of Estimated Future Amortization Expense | The estimated future amortization expense for the
next five years and thereafter is as follows:
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Related Party Transactions (Tables) |
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Loans Payable to Related Parties | As of June 30, 2024 and December
31, 2023, the Company had outstanding the following loans payable to related parties:
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Loans Payable (Tables) |
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Loans Payable | As of June 30, 2024 and December
31, 2023, the Company had outstanding the following loans payable:
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Convertible Debentures (Tables) |
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Convertible Debentures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Convertible Debentures | As of June 30, 2024 and December
31, 2023, the Company had outstanding the following convertible debentures:
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Warrant Liabilities (Tables) |
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Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Warrant Liabilities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Changes in the Fair Value of the Company's Level 3 Warrant Liabilities | The table below sets forth
a summary of changes in the fair value of the Company’s Level 3 warrant liabilities for the six months ended June 30, 2024:
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| Schedule of Significant Change in the Fair Value Measurement | The following table shows the assumptions used in the
calculations:
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Share Purchase Warrants and Stock Options (Tables) |
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Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share Purchase Warrants and Stock Options [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Share Purchase Warrants | The following table summarizes
the activity of share purchase warrants for the period of January 1, 2024 through June 30, 2024:
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| Schedule of Share Purchase Warrants Outstanding | As of June 30, 2024, the following
share purchase warrants were outstanding:
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| Schedule of Activity of Stock Options | The following table summarizes
the activity of stock options for the period of January 1, 2024 through June 30, 2024:
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| Schedule of Stock Options Outstanding | As of June 30, 2024, the following stock options
were outstanding:
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Leases (Tables) |
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Operating Lease Right of Use (“ROU”) Assets and Liabilities | The following table sets forth
the operating lease right of use (“ROU”) assets and liabilities as of June 30, 2024 and December 31, 2023:
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| Schedule of Lease Payments | Remaining
lease payments as of June 30, 2024 are as follows:
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Segment Disclosures (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Financial Statement Information by Operating Segment | Financial statement information
by operating segment for the three and six months ended June 30, 2024 is presented below:
Financial statement information by operating segment for the three and six months ended June 30, 2023 is presented below:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Basic and Diluted Earnings Per Share | The following table shows
the computation of basic and diluted earnings per share for the three and six months ended June 30, 2024 and 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Company’s Discontinued Operations | The following table shows the balance of the Company’s discontinued
operations as of June 30, 2024 and December 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Statements of Operations for the Company’s Discontinued Operations | The following table shows
the statement of operations for the Company’s discontinued operations for the three and six months ended June 30, 2024 and 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization (Details) |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2024 |
Aug. 04, 2023 |
Feb. 15, 2022 |
|
| Organization [Line Items] | |||
| Entity incorporation date | Jan. 20, 2017 | ||
| HWN and JTM Electrical Contractors, Inc [Member] | |||
| Organization [Line Items] | |||
| Business owned, percentage | 50.00% | 50.00% | |
| Overwatch Cyberlab, Inc. [Member] | |||
| Organization [Line Items] | |||
| Business owned, percentage | 80.00% | ||
| John Peterson [Member] | |||
| Organization [Line Items] | |||
| Business owned, percentage | 20.00% |
Property and Equipment (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Property and Equipment [Abstract] | ||
| Depreciation expense | $ 126,292 | $ 78,718 |
Property and Equipment (Details) - Schedule of Property and Equipment - USD ($) |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Property and Equipment [Line Items] | ||
| Property and equipment, gross | $ 1,517,380 | $ 1,504,056 |
| Less: accumulated depreciation | (604,055) | (477,763) |
| Equipment, net | 913,325 | 1,026,293 |
| Computers and office equipment [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Property and equipment, gross | 187,008 | 175,008 |
| Vehicles [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Property and equipment, gross | 11,938 | 11,938 |
| Leasehold improvements [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Property and equipment, gross | 6,113 | 6,113 |
| Software [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Property and equipment, gross | 473,521 | 472,197 |
| Machinery and equipment [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Property and equipment, gross | $ 838,800 | $ 838,800 |
Intangible Assets (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Intangible Assets [Abstract] | ||
| Amortization expense | $ 295,569 | $ 339,749 |
Intangible Assets (Details) - Schedule of Intangible Assets - USD ($) |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Intangible Assets [Line Items] | ||
| Cost | $ 4,439,746 | |
| Accumulated Amortization | (1,236,885) | $ (2,350,059) |
| Net carrying value | 3,202,861 | 3,620,256 |
| Customer relationship and lists [Member] | ||
| Schedule of Intangible Assets [Line Items] | ||
| Cost | 3,885,679 | |
| Accumulated Amortization | (1,082,294) | |
| Net carrying value | 2,803,385 | 3,007,702 |
| Trade names [Member] | ||
| Schedule of Intangible Assets [Line Items] | ||
| Cost | 554,067 | |
| Accumulated Amortization | (154,591) | |
| Net carrying value | $ 399,476 | $ 612,554 |
Intangible Assets (Details) - Schedule of Estimated Future Amortization Expense - USD ($) |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Estimated Future Amortization Expense [Abstract] | ||
| 2024 | $ 221,988 | |
| 2025 | 443,976 | |
| 2026 | 443,976 | |
| 2027 | 443,976 | |
| 2028 | 443,976 | |
| Thereafter | 1,204,969 | |
| Total | $ 3,202,861 | $ 3,620,256 |
Related Party Transactions (Details) - Schedule of Loans Payable to Related Parties - Related Party [Member] - USD ($) |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Related Party Transaction [Line Items] | ||
| Less: Current portion of loans payable to related parties | $ (116,556) | $ (254,032) |
| Loans payable to related parties, net of current portion | 273,319 | 44,703 |
| Promissory note issued to Mark Porter [Member] | ||
| Related Party Transaction [Line Items] | ||
| Promissory note | 136,346 | 100,000 |
| Convertible promissory note issued to Mark Porter [Member] | ||
| Related Party Transaction [Line Items] | ||
| Promissory note | 253,529 | 154,032 |
| Convertible promissory note issued to Keith Hayter [Member] | ||
| Related Party Transaction [Line Items] | ||
| Promissory note | 44,703 | |
| Related Party [Member] | ||
| Related Party Transaction [Line Items] | ||
| Promissory note | $ 389,875 | $ 298,735 |
Related Party Transactions (Details) - Schedule of Loans Payable to Related Parties (Parentheticals) - Related Party [Member] - USD ($) |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2024 |
Dec. 31, 2023 |
|
| Related Party Transaction [Line Items] | ||
| Net of debt discount | $ 0 | $ 25,297 |
| Promissory note issued to Mark Porter [Member] | ||
| Related Party Transaction [Line Items] | ||
| Interest, unsecured | 9.00% | |
| Matured date | Dec. 31, 2025 | |
| Convertible promissory note issued to Mark Porter [Member] | ||
| Related Party Transaction [Line Items] | ||
| Matured date | Dec. 31, 2025 | |
| Interest, secured | 12.00% | |
| Net of debt discount | $ 0 | $ 10,968 |
| Convertible promissory note issued to Keith Hayter [Member] | ||
| Related Party Transaction [Line Items] | ||
| Interest, unsecured | 18.00% | |
| Matured date | Mar. 25, 2025 |
Loans Payable (Details) - Schedule of Loans Payable - Nonrelated Party [Member] - USD ($) |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Loans Payable [Line Items] | ||
| Loans payable | $ 1,528,416 | $ 2,995,803 |
| Less: Current portion of loans payable | (1,432,666) | (2,995,803) |
| Loans payable, net of current portion | 95,750 | |
| Cedar Advance LLC [Member] | ||
| Schedule of Loans Payable [Line Items] | ||
| Loans payable | 286,839 | 623,118 |
| Pawn Funding [Member] | ||
| Schedule of Loans Payable [Line Items] | ||
| Loans payable | 356,540 | 692,885 |
| Slate Advance LLC [Member] | ||
| Schedule of Loans Payable [Line Items] | ||
| Loans payable | 246,737 | 630,092 |
| Meged Funding Group [Member] | ||
| Schedule of Loans Payable [Line Items] | ||
| Loans payable | 420,900 | 700,059 |
| InterCloud Systems, Inc. [Member] | ||
| Schedule of Loans Payable [Line Items] | ||
| Loans payable | 217,400 | 217,400 |
| Arin Funding LLC [Member] | ||
| Schedule of Loans Payable [Line Items] | ||
| Loans payable | 47,741 | |
| Arin Funding LLC One [Member] | ||
| Schedule of Loans Payable [Line Items] | ||
| Loans payable | $ 84,508 |
Factor Financing (Details) - USD ($) |
6 Months Ended | ||
|---|---|---|---|
Feb. 22, 2023 |
Jun. 30, 2024 |
Dec. 31, 2023 |
|
| Factor Financing [Line Items] | |||
| Face value percentage | 90.00% | ||
| Borrowings | $ 9,000,000 | $ 4,000,000 | |
| Prime rate | 9.25% | ||
| Factoring fees | $ 257,578 | ||
| Aggregate received amount | 6,673,090 | ||
| Repaid of aggregate amount | 8,034,746 | ||
| Factor financing amount | $ 1,361,656 | ||
| HWN [Member] | |||
| Factor Financing [Line Items] | |||
| Factoring fee percentage | 0.45% | ||
| Prime rate | 1.75% | ||
| SVC [Member] | |||
| Factor Financing [Line Items] | |||
| Factoring fee percentage | 0.25% |
Warrant Liabilities (Details) - USD ($) |
3 Months Ended | 6 Months Ended |
|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2024 |
|
| Warrant Liabilities [Abstract] | ||
| Warrant liabilities | $ 921,422 | $ 921,422 |
Warrant Liabilities (Details) - Schedule of Changes in the Fair Value of the Company's Level 3 Warrant Liabilities - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Warrant Liabilities [Abstract] | ||||
| Balance at the beginning of the period | $ 833,615 | |||
| Issuance of warrants | 439,600 | |||
| Change in fair value of warrant liabilities | $ 12,200 | (229,793) | ||
| Return of warrants | (921,422) | |||
| Balance at the end of the period | $ 122,000 | $ 122,000 | ||
Common Stock (Details) - Common Stock [Member] |
Jun. 30, 2024
$ / shares
shares
|
|---|---|
| Common Stock [Line Items] | |
| Common stock authorized Shares | shares | 1,000,000,000 |
| Common stock, par value | $ / shares | $ 0.00001 |
Share Purchase Warrants and Stock Options (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2024 |
Dec. 31, 2023 |
|
| Share Purchase Warrants and Stock Options [Line Items] | ||
| Fair value of warrants | $ 122,000 | $ 833,615 |
| Weighted-average remaining life stock options | 4 years 3 months 18 days | |
| Stock-based compensation expense | $ 248,547 | |
| Warrant [Member] | ||
| Share Purchase Warrants and Stock Options [Line Items] | ||
| Weighted-average remaining life | 2 years 8 months 12 days |
Share Purchase Warrants and Stock Options (Details) - Schedule of Activity of Stock Options - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2024 |
Dec. 30, 2023 |
|
| Schedule of Activity of Stock Options [Abstract] | ||
| Number of stock options, Issued | 22,305,393 | |
| Weighted average exercise price, Issued | $ 0.05 | |
| Number of stock options, Exercised | ||
| Weighted average exercise price, Exercised | ||
| Number of stock options, Canceled/expired/forfeited | (19,958,754) | |
| Weighted average exercise price, Canceled/expired/forfeited | $ 0.15 | |
| Number of stock options, Outstanding Balance | 28,861,556 | |
| Weighted average exercise price, Outstanding Balance | $ 0.1 | |
| Intrinsic value, Outstanding Balance | $ 168,274 | |
| Number of stock options, Exercisable | 19,364,151 | |
| Weighted average exercise price, Exercisable | $ 0.13 | |
| Intrinsic value, Exercisable | $ 94,119 |
Leases (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Leases [Abstract] | ||
| Operating lease expense | $ 57,334 | $ 66,921 |
| Short term lease cost | 0 | 31,754 |
| Measurement of operating lease liabilities | 54,561 | 64,722 |
| Operating lease liabilities cash paid | $ 48,459 | $ 67,021 |
| Weighted average discount rate | 5.00% | |
| Weighted average remaining term | 2 years 1 month 6 days | |
Leases (Details) - Schedule of Operating Lease Right of Use (“ROU”) Assets and Liabilities - USD ($) |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Operating Lease Right of Use (“Rou”) Assets and Liabilities [Abstract] | ||
| Operating lease assets | $ 226,763 | $ 277,995 |
| Operating lease liabilities: | ||
| Current operating lease liabilities | 96,853 | 89,318 |
| Long term operating lease liabilities | 134,995 | 190,989 |
| Total operating lease liabilities | $ 231,848 | $ 280,307 |
Leases (Details) - Schedule of Lease Payments - USD ($) |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Lease Payments [Abstract] | ||
| 2024 | $ 56,834 | |
| 2025 | 116,965 | |
| 2026 | 70,179 | |
| Total lease payments | 243,978 | |
| Less: imputed interest | (12,130) | |
| Total | $ 231,848 | $ 280,307 |
Segment Disclosures (Details) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Segment Disclosures [Abstract] | ||
| Number of operating segments | 3 | 3 |
Segment Disclosures (Details) - Schedule of Financial Statement Information by Operating Segment - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
Dec. 31, 2023 |
|
| Schedule of Financial Statement Information by Operating Segment [Line Items] | |||||
| Net sales | $ 1,937,618 | $ 1,699,542 | $ 3,999,121 | $ 3,648,640 | |
| Operating (loss) income | (3,003,714) | (2,797,299) | (4,531,039) | (4,779,500) | |
| Interest expense | 744,037 | 402,401 | 987,073 | 588,053 | |
| Depreciation and amortization | 233,523 | 214,743 | 421,861 | 415,890 | |
| Total assets | 11,929,207 | 10,831,754 | 11,929,207 | 10,831,754 | $ 10,831,754 |
| Corporate [Member] | |||||
| Schedule of Financial Statement Information by Operating Segment [Line Items] | |||||
| Net sales | |||||
| Operating (loss) income | (350,752) | (653,221) | (632,174) | (1,723,399) | |
| Interest expense | 190,839 | 34,820 | 351,659 | 217,306 | |
| Depreciation and amortization | |||||
| Total assets | 14,865 | 14,929 | 14,865 | 14,929 | |
| Cybersecurity [Member] | |||||
| Schedule of Financial Statement Information by Operating Segment [Line Items] | |||||
| Net sales | 1,046,566 | 840,683 | 2,092,394 | 1,967,386 | |
| Operating (loss) income | (2,528,811) | (2,011,100) | (3,776,150) | (2,808,769) | |
| Interest expense | 553,198 | 367,581 | 635,414 | 370,747 | |
| Depreciation and amortization | 92,028 | 63,903 | 150,389 | 114,210 | |
| Total assets | 6,077,956 | 4,990,874 | 6,077,956 | 4,990,874 | |
| SVC [Member] | |||||
| Schedule of Financial Statement Information by Operating Segment [Line Items] | |||||
| Net sales | 891,052 | 858,859 | 1,906,727 | 1,681,254 | |
| Operating (loss) income | (124,151) | (132,978) | (122,715) | (247,332) | |
| Interest expense | |||||
| Depreciation and amortization | 141,495 | 150,840 | 271,472 | 301,680 | |
| Total assets | $ 5,836,386 | $ 5,825,951 | $ 5,836,386 | $ 5,825,951 | |
Discontinued Operations (Details) - Schedule of Company’s Discontinued Operations - USD ($) |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Current assets: | ||
| Cash | $ 5,075 | |
| Accounts receivable | 1,623,936 | |
| Current assets of discontinued operations | 1,629,011 | |
| Current liabilities: | ||
| Accounts payable and accrued liabilities | 505,782 | 1,227,529 |
| Contract liabilities | 301,757 | |
| Current liabilities of discontinued operations | $ 505,782 | $ 1,529,286 |
Discontinued Operations (Details) - Schedule of Statements of Operations for the Company’s Discontinued Operations - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Schedule Of Statements Of Operations For The Company SDiscontinued Operations Abstract | ||||
| Revenue | $ 1,969,052 | $ 4,240,524 | $ 7,558,530 | $ 12,456,597 |
| Operating expenses: | ||||
| Cost of revenues | 1,103,457 | 2,164,313 | 4,132,178 | 9,535,960 |
| Depreciation and amortization | 1,104 | 2,577 | ||
| Salaries and wages | 686,566 | 1,111,956 | 1,136,044 | 2,400,082 |
| General and administrative | 269,288 | 385,545 | 505,578 | 589,114 |
| Total operating expenses | 2,059,311 | 3,662,918 | 5,773,800 | 12,527,733 |
| (Loss) income from operations | (90,259) | 577,606 | 1,784,730 | (71,136) |
| Other income (expenses): | ||||
| Gain on sale of business unit | 7,950,773 | 7,950,773 | ||
| Other income | 1,500 | |||
| Gain (loss) on disposal of subsidiary | (1,336,789) | |||
| Exchange loss | (923) | |||
| Total other income (expense) | 7,950,773 | 7,952,273 | (1,337,712) | |
| Pre-tax income (loss) from discontinued operations | 7,860,514 | 577,606 | 9,737,003 | (1,408,848) |
| Provision for income taxes | ||||
| Net income (loss) from discontinued operations, net of tax | $ 7,860,514 | $ 577,606 | $ 9,737,003 | $ (1,408,848) |